Documente Academic
Documente Profesional
Documente Cultură
DEVELOPMENT IN KENYA
D61/71243/2008
OCTOBER 2013
DECLARATION
This research project is my own original work and has not been submitted for examination in any
other university
ELIZABETH WANGOO
D61/71243/2008
This research project has been submitted for examination with my approval as the university
supervisor
MIRIE MWANGI
University of Nairobi
ii
ACKNOWLEDGEMENTS
Mr. Mirie Mwangi has been the ideal project supervisor. His insightful criticism and patient
encouragement aided the writing of this research project in innumerable ways. I would also want
to thank Patrick Gikaria whose support and encouragement was deeply appreciated.
Heartfelt thanks to all lecturers in the department of accounting and finance for the knowledge
they have impacted in me. Sincere thanks to my fellow students for their assistance
iii
DEDICATION
This research project is dedicated to God first, my husband for his advice and support and to my
entire family
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ABSTRACT
The importance of an inclusive financial system is widely recognized in the policy circle and has
become a policy priority in many countries including Kenya. This research project seeks to
examine critically financial inclusion and economic development in Kenya. The objective of the
study is to review existing sources of detailed data on financial inclusion and economic
development and establish the relationship between financial inclusion and economic
development in Kenya and make recommendation. The research design chosen for analysis was
meta-analysis. Secondary data was collected from United Nations Development Programme
(UNDP), International Monetary Fund (IMF) and Financial Access Surveys (FAS). This data
was analyzed using descriptive statistical approach, regression and correlation analysis. The
excel software was used to transform the variables into a format suitable for analysis after which
the statistical package for social sciences for data analysis (SPSS) was used, which provided
various statistics. The output from SPSS provided the basis for analysis and findings of the
study. The period covered by the study was 7 years from the year 2005 to 2011.The study found
out that there is a positive relationship between financial inclusion and economic development
and an increase in financial inclusion leads to an increase in economic development. This was
revealed by the various correlation tests and regression test carried out i.e. the Pearson
correlation matrix highlighted that there is a significant correlation between the dependent
variable human development Index (HDI) independent variable number of bank branches and
number of bank accounts at 0.985 and 0.952 respectively. Financial inclusion ensures ease of
availability, accessibility and usage of the formal financial system to all members of the
economy. Financial inclusion is an important aspect of development. Policymakers in developing
countries have an important role to play in creating the conditions for improved access, and
thereby unlocking the economic potential of their populations. The potential for economic
growth and poverty alleviation through the development of a more inclusive financial services
sector has been recognized as a priority issue in many countries. There is need for government of
Kenya to recognize the importance of financial inclusion and make policies that are more
inclusive for greater economic development. Further research is needed on financial inclusion, its
indicators and determinants as well as its impact on development. Its impact as an effective
developmental policy is still under research.
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TABLE OF CONTENTS
DECLARATION............................................................................................................................ii
ACKNOWLEDGEMENT..............................................................................................................iii
DEDICATION................................................................................................................................iv
ABSTRACT.....................................................................................................................................v
LIST OF TABLES..........................................................................................................................vi
LIST OF FIGURES.......................................................................................................................vii
ABBREVIATIONS......................................................................................................................viii
2.1 Introduction......14
vi
2.3 Review of Empirical research..........18
4.1 Introduction.37
vii
4.6 Summary of data analysis49
CHAPTER FIVE:
5.1 Introduction..50
5.3 Conclusion...52
5.4 Recommendation 53
5.5 Limitation.55
REFERENCES..58
APPENDICES...64
viii
LIST OF TABLES
ix
LIST OF FIGURES
4.2b: A graph showing the trend of Human Development Index for Kenya as compared to other
countries
4.3a: A graph showing the trend of the number of bank accounts (per 1000 adult population) in
Kenya
4.3b: A graph showing the trend of the number of bank branches (per 100,000 people) in Kenya
4.3c: A graph showing the trend of the amount of bank credit and bank deposits trend of Kenya
4.5 b: A scatter plot showing the relationship between the dependent and standardized
independent variables
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ABBREVIATIONS
FI - Financial Inclusion
M-Pesa - M-Pesa is derived from M for mobile and Pesa for money in Swahili.
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CHAPTER ONE:
INTRODUCTION
Globally, 2.7 billion adults do not have access to formal financial services (Demirguc-kunt,
Levine and Ross 2009). Through its Financial Inclusion 2020 project, the Centre for
financial inclusion defines full financial inclusion as a state in which everyone who can use
them has access to a full suite of quality financial services, provided at affordable prices, in
a convenient manner, with respect and dignity. Financial services are delivered by a range
survey carried out in 2011, the center expanded the definition to note that full inclusion
requires the clients of these services to be financially literate (Gardeva & Rhyne, 2011).
important to note that these two are not the same. It refers to the increased provision of
financial services with a wider choice of services geared to all levels of society. Financial
deepening generally means an increased ratio of money supply to GDP or some price
index. It refers to liquid money. The more liquid money is available in an economy, the
more opportunities exist for continued growth. It can also play an important role in
reducing risk and vulnerability for disadvantaged groups, and increasing the ability of
individuals and households to access basic services like health and education, thus having
a more direct impact on poverty reduction Deepening can happen without financial
inclusion if volumes of financial flows increase while only a fraction of the population
1
participates. It is essentially the process of increasing financial intermediation or
Finance is an essential part of the development process, and modern development theories
emphasize the key role of access to finance. Access to finance makes transactions quicker,
cheaper, and safer, because it avoids cash or barter payments. Greater access to financial
services enables poor people to plan for the future and invest in land and shelter, and to
utilize productivity. It is widely recognized that the development pathway requires access
for families and firms to appropriate financial products, including savings, credit,
household and economy- wide levels depends on access to financial products and services.
Suarez, 2009).
services is defined as an absence of price and non price barriers in the use of financial
services. In order for a country to attain full inclusion the following are of great
importance. Financial services should be accessible to all: this is often seen as the goal of
financial inclusion. Financial services provided should also be of quality: quality financial
dignity of treatment, and client protection. Financial inclusion involves provision of the
2
full suite of basic financial services; this refers to group of core financial services that
includes basic credit, savings, insurance and payment services (Gardeva & Rhyne, 2011).
Financial exclusion has been defined it in the context of a larger issue of social exclusion
of certain groups of people from the mainstream of the society. Leyshon and Thrift (1995)
define financial exclusion as referring to those processes that serve to prevent certain social
groups and individuals from gaining access to the formal financial system. Carbo,
Gardener and Molyneux (2005) have defined financial exclusion as broadly the inability of
some societal groups to access the financial system. According to Conroy (2005), financial
exclusion is a process that prevents poor and disadvantaged social groups from gaining
access to the formal financial systems of their countries. According to Mohan (2006)
financial exclusion signifies the lack of access by certain segments of the society to
appropriate, low-cost, fair and safe financial products and services from mainstream
providers.
Millions of people across the developing world do not have access to banking services.
Faced with barriers related to cost, geography and education, these individuals have no
way of securely transferring funds, saving money, insurance or accessing credit (BASA,
2003).These four services serve different needs that each household encounters, and
ensuring access to this product range is an important goal of financial inclusion. Credit
households can store funds, allowing them to tap into "past income" as needed. Insurance
3
protects against vulnerability to shocks (e.g. death, illness, or disability in the family).
Payments services allow people to carry out financial transactions without having to be
face-to-face
Access has many dimensions: services need to be available when desired, and products
need to be tailored to specific needs; the prices for these services need to be affordable,
including all non price costs, such as having to travel a long distance to a bank branch; and,
most important, it should also make business sense, translate into profits for the providers
measure. Usage is often used as a proxy, although it can underestimate the number of
households that have access because it fails to capture those who currently have access to a
financial service but are not using it (Demirguc-kunt, Levine and Ross 2009).
access and availability to a whole gamut of financial services; in developing countries like
ours, access to a simple bank account, is to start with, the gateway to basic banking
services. The bank account as a product incorporates values such as security, convenience,
liquidity, confidentiality, and product appropriateness for their needs, friendly service and
potential access to loans. Thus, a savings bank account can play an important role in
4
1.1.2 Economic Development
illiteracy, illness and poor health, powerlessness, voicelessness, insecurity, humiliation and
Schulte 2000). Seers (1979) argues that the purpose of development is to reduce poverty,
Sampson, (2012) defines economic development in terms of objectives. These are most
commonly described as the creation of jobs and wealth, and the improvement of quality of
life. Economic development can also be described as a process that influences growth and
broadest sense, economic development encompasses three major areas: Policies that
government undertakes to meet broad economic objectives including inflation control, high
employment and sustainable growth, Policies and programs to provide services including
building highways, managing parks and providing medical access to the disadvantaged and
finally policies and programs explicitly directed at improving the business climate through
retention and expansion, technology transfer, real estate development and others. The main
through efforts that entail job creation, job retention, tax base enhancements and quality of
life.
5
According to Sen, (1983) economic development generally refers to the sustained,
concerted actions of policymakers and communities that promote the standard of living
and economic health of a specific area. It can also be referred to as the quantitative and
intervention endeavor with aims of economic and social well-being of people. The scope of
economic development includes the process and policies by which a nation improves the
economic, political, and social well-being of its people (O'Sullivan and Sheffrin, 2003).
Broadly speaking, economic development has been defined in different ways and as such it
is difficult to locate any single definition which may be regarded entirely satisfactory
The Consultative Group to Assist the Poor, CGAP (2007), in their report estimated that 80
percent of people in least developed countries are un-banked. The term un-banked refers to
people who do not use simple banking services that the developed world and most people
in urban areas take for granted, such as remittances and savings. Barriers to conventional
methods of banking include lack of education, illiteracy, high fees, and proximity to
banking facilities. This lack of access to banking services hinders economic development.
It gives the poor no option other than the informal, cash economy, leaving them vulnerable
6
Financial markets and institutions exist to mitigate effects of information asymmetries and
transaction cost that prevent the direct pooling and investment of societys savings.
Financial institutions help mobilize savings and provide payments services that facilitate
the exchange of goods and services. In addition, they produce and process information
about investors and investment projects to enable efficient allocation of funds. Lack of
efficient and developed financial institutions and markets leads to lower incomes and
When they work well, financial institutions and markets provide opportunities for all
market participants to take advantage of the best investments by channeling funds to their
most productive uses, hence boosting growth, improving income distribution, and reducing
poverty. Developing the financial sector and improving access to finance are likely not
only to accelerate economic growth, but also to reduce income inequality and poverty. The
exclusion, however, the same may not (and need not) be considered as financial exclusion
Finance can contribute not just to income growth and poverty reduction, the most
important of the Millennium Development Goals (MDGs), but also to MDGs such as
improving education, gender equality, and health, with some goals more specifically
7
affected. More investment and higher productivity translate not only into more income and
therefore better nutrition and health; it also enables parents to send their children to school
instead of merely regarding them as a source of labor. Access to finance creates equal
opportunities for everybody. Access to financial services helps women in determining their
own economic destiny and increases their confidence and say in their households and
communities. More sophisticated financial markets discriminate less; they provide capital
firms, size, ownership, and profitability do not matter; for households, current income,
wealth, education, gender, and ethnicity are irrelevant. Indeed, financial development can
The access to financial services can be measured in the form of access to certain
perform or services they provide such as payment services, saving or loans and credit One
of the popular benchmarks employed to assess the degree of financial services to the
population of the country is the quantum of deposit accounts held as ratio to the adult
population. The primary barriers in expansion of financial services are identified as: Non-
availability of a bank branch within near distance for physical access, banks do not prefer
low income people as their clients, perceptions of financial services are found as
complicated, high charges and penalties attached to banking products and services which
8
make them unaffordable, other factors include gender, age, legal entity, illiteracy, place of
living, physical and cultural barriers, type of occupation etc (Beck, Demirg-Kunt and
Peria 2010).
Low and moderate income households are especially in need of effective financial
products, services, and tools to manage and grow their money in a way that meets their
daily needs and allows for future investments. Yet, the financial services currently
available to the rural poor are often costly, unsafe, and inefficient. Money kept at home
and other intermediaries charge high fees and prohibitive interest rates. These constraints
are reflected in only 22.6% of adults having access to a formal bank account in Kenya
Kenya has made impressive strides towards financial inclusion. The formally included
(defined as those using a bank, post bank or insurance product) went up from 18.9% in
2006 to 22.6% in 2009. The proportion of financially excluded decreased from 38.4% to
32.7%.Savings usage increased in all but the top wealth quintile between 2006 and 2009.
Most importantly, savings rates increased in the lowest wealth quintile, from 23% in 2006
to 29% in 2009.Bank usage increased in every single wealth quintile between 2006 and
2009. The number of bank branches in the county country grew by 12%. Gains have come
from the introduction of mobile money and the responding rollout of branchless agency
9
The Kenya Financial Sector Deepening programme (FSDK), was established in 2005 to
stimulate wealth creation and reduce poverty by expanding access to financial services for
lower income households and smaller scale enterprises. Competition is strong amongst a
diverse group of financial service providers that have moved deeper into the low-income
market over the last five years, in part thanks to FSDK interventions. Gains too have come
from the introduction of mobile money and the responding rollout of branchless agency
banking models by commercial banks competing for the mass market space. The Kenyan
The vital role of the financial system and technology is entrenched in the Kenyas
development blue print Vision 2030, which aims at transforming the country into a
newly industrialized middle-income country that provides high quality of life to its
citizenry by the year 2030. Under Vision 2030s economic pillar, the financial services
sector and information, communication and technology are two of the six priority sectors
amongst Tourism, Agriculture and Livestock, Wholesale and Retail Trade, Manufacturing,
identified to address Kenyas economic challenges and grow GDP to 10% by the year
2012. The six priority sectors contribute the most to Kenyas GDP (57%) and create half of
There is a general consensus among economists that financial development spurs economic
10
between financial deepening and savings and investments in Kenya and found a strong
creates enabling conditions for growth. Empirical research supports the view that
development of the financial system contributes to economic growth (Rajan and Zingales,
2003). There has not been any research done on the relationship of financial inclusion and
A developed financial system broadens access to funds; conversely. Arnold, Beck, Ellis
(2011) carried out a survey on the barriers to financial access in Kenya on the findings of
FinAccess 2009, they found out that investment in productive assets correlates with access
to formal financial services, rapid expansion of financial service market led to inclusion of
those most able to take up the services, usage of informal products and services rose
alongside formal usage and nation-wide increases in financial access did not necessarily
translate into greater equality of access. Based on this research, questions for further
research were raised into why the informal products and services rose alongside formal
usage and why nation-wide increases in financial access did not necessarily translate into
Empirical evidence consistently emphasizes the nexus between finance and growth, though
the issue of direction of causality is more difficult to determine. Beck, Demirguc-Kunt and
Peria (2010) assessed the stability, efficiency, and outreach of Kenya's banking system,
using aggregate, bank-level, and survey data. They found out that Banks' asset quality and
liquidity positions had improved over the recent years, making the economic system more
11
resistant to shocks, and interest rate spreads had declined. Outreach remained limited, but
had improved in recent years, driven by mobile payments services in the domestic
remittance market. This study proposes also to close the knowledge gap on the relationship
of financial inclusion and economic development and to provide further evidence that
promoting financial inclusion as a policy will lead to economic development of the country
Recent research suggests that financial inclusion is an issue well beyond households living
on less than $2 a day instead, it shows how in many countries, the number of financially
excluded adults significantly exceeds the adult population living under the $2-a-day
poverty line.(Hannig and Jansen 2010). Does this mean there is not a clear correlation
between financial inclusion and economic development? This is the main research question
this study aim at answering by studying and analyzing the relationship between financial
There exist disconnect between evidence on the effects of national financial depth and the
study aims at closing the of research gap on how financial inclusion influences the
The objective of this study is to investigate the relationship between financial inclusion and
12
Financial inclusion and its importance is a relatively new concept, its relationship to
economic development has been under research for only a decade. This study will go on to
This study aims at examining the current status of financial inclusion in Kenya and
analyzing the relationship between its financial inclusion and economic development
which will aid policy makers in making policies that are more inclusive for economic
creating the conditions for improved access, and thereby unlocking the economic potential
of their populations. The potential for economic growth and poverty alleviation through the
development of a more inclusive financial services sector has been recognized by leaders
Economics and Accounting will find this study useful in their quest to understand financial
Consultants especially in the area of financial inclusion and economic development will
find this report useful in their quest to provide appropriate, feasible and informed advice to
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CHAPTER: TWO:
LITERATURE REVIEW
2.1 Introduction
Well-functioning financial systems serve a vital purpose, offering savings, credit, payment,
and risk management products to people with a wide range of needs. Inclusive financial
systemsallowing broad access to financial services, are especially likely to benefit poor
people and other disadvantaged groups. Without inclusive financial systems, poor people
must rely on their own limited savings to invest in their education or become
promising growth opportunities. This can contribute to persistent income inequality and
A theoretical (or conceptual) definition gives the meaning of a word in terms of the
theories of a specific discipline. This type of definition assumes both knowledge and
hypothetical construct
The earliest proponent of free market economy was first discussed in the Classical 1776
wealth of nations by Adam Smith. He advocated for the invincible hand in the economic
14
set-up where the economy was to be left to operate on its own where forces of supply and
According to Adam smith the classical economic theory is rooted in the concept of a
laissez- faire economic market. Laissez-faire also known as free-market requires little to no
government intervention. It also allows individuals to act according to their own self
interest regarding economic decisions. This ensures economic resources are allocated
according to the desires of individuals and businesses in the marketplace. Bagehot (1873),
in his classical Lombard street, where he emphasized the critical importance of the banking
system in economic growth and highlighted circumstance when banks could actively spur
Schumpeter (1912) is very explicit on this score: The banker, therefore, is not so much
King, Levine (1993) presented cross-country evidence consistent with Schumpeter's view
that the financial system can promote economic growth, using data on 80 countries over
the 19601989 periods. He found out that various measures of the level of financial
development are strongly associated with real per capita GDP growth, the rate of physical
capital accumulation, and improvements in the efficiency with which economies employ
15
robustly correlated with future rates of economic growth, physical capital accumulation,
Keynes (1930) in his treatise on money also argued for the importance of the banking
sector in economic growth. He suggested the bank credit is the pavement along which
production travels, and the bankers if they knew their duty, would provide the transport
facilities to just the extent that is required in order that the productive powers of the
community can be employed at their full capacity. In the same spirit Robinson (1952)
argued that financial development follows growth, and articulated this causality argument
by suggesting that where enterprise leads finance follows. Both, however, recognized
believe the nation economy is made up of consumer spending, business investment and
government spending.
focus on the short-term needs and how economic policies can make instant corrections to a
businesses do not usually have the resources for creating immediate results through
consumer spending or business investment. The government is seen as the only force to
16
end these downturns through monetary or fiscal policies providing in aggregate demand
government expenditure. In order to reach full employment; the government should inject
money into the economy by increasing government expenditure. The financial sectors in
developing countries are not only regulated, but heavily repressed, if one uses the
terminology of McKinnon (1973) and Shaw (1973). Efficiency and equity lead to
financial institutions and markets provide opportunities for all to make investments by
channeling funds to their most productive uses, hence boosting growth, improving income
distribution, and reducing poverty. Developing the financial sector and improving access to
finance accelerate economic growth and reduce income inequality and poverty
Keynes (1936) later supported an alternative structure that included direct government
income, thereby raising demand for money. This disequilibrium is resolved by reducing
private investments resulting from higher interest rates. Since higher interest rates lower
design government policies that are attentive to the various imperfections and
17
inefficiencies of the markets. Financial Inclusion seeks to overcome the frictions that
hinder the functioning of the market mechanism to operate in favor of the poor and
underprivileged.
capital allocation, boosted aggregate growth, and helped the poor through this channel.
However, the distributional effect of financial development, and hence the net impact on
the poor, depended on the level of economic development. At early stages of development,
only the rich can afford to access and directly profit from better financial markets. At
higher levels of economic development, many people access financial markets so that
financial development directly helps a larger proportion of society. He used the Gini
coefficient, which measured deviations from perfect income equality. He found out that
financial development and the growth rate of the Gini coefficient, which holds when
Rousseaua and Wachtelb (1996) conducted causality tests between financial development
and real GDP using recently developed time series techniques. Their results provided little
support to the view that finance is a leading sector in the process of economic
18
evidence of reverse causation. Their findings also clearly demonstrated that causality
patterns vary across countries and, therefore, highlighted the dangers of statistical
inference based on cross-section country studies which implicitly treat different economies
as homogeneous entities
Li, Xu, and Zou (2000) carried out a cross-country research on the impact of inflation on
income distribution and economic growth found out that inflation worsens income
distribution, increases the income share of the rich, has a negative but insignificant effect
on the income shares of the poor and the middle class and it reduces the rate of economic
growth
Guiso, Sapienza and Zingales (2002) used individual regions of Italy household dataset
and examined the effect of differences in local financial development on economic activity
across the different regions. They found that local financial development enhances the
promotes growth of firms. And these results are stronger for smaller firms which cannot
Clarke, Xu and Zou (2003) examined the relationship between finance and income
inequality for 83 countries between 1960 and 1995. Their results suggested that, in the
long run, inequality is less when financial development is greater also that inequality might
increase as financial sector development increases at very low levels of financial sector
development, as suggested by Greenwood and Jovanovic (1990), this result is not robust.
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In their results they suggested that in addition to improving growth, financial development
Beck, Demirguc-Kunt and Peria (2005) under the World Bank research initiative used
information from 193 banks in 58 countries; the researchers developed and analyzed
indicators of physical access, affordability, and eligibility barriers to deposit, loan, and
banking showed that in many countries these barriers could potentially exclude a
significant share of the population from using banking services. Correlations with bank-
and country-level variables showed that bank size and the availability of physical
Thorsten, Demirguc-Kunt and Peria (2005) carried out research on various indicators of
measures of financial development, as well as with economic activity. The researchers also
found out that better communication and transport infrastructure and better governance are
also associated with greater outreach. They also found out that firms in countries with
higher branch and ATM penetration and higher use of loan services report lower financing
obstacles, thus linking banking sector outreach to the alleviation of firms' financing
constraints.
Demirg-Kunt and Levine (2007) used cross country data to show that financial
20
reducing income inequality and more strongly through impacts on aggregate economic
growth. Countries with higher levels of financial development also experienced swifter
reductions in the share of the population living on less than $1 per day .Controlling for
other relevant variables; almost 30 percent of the variation across countries in rates of
Bruhn and Love (2009) examined the effects of providing financial services to low-income
individuals on entrepreneurial activity, employment, and income. The analysis used cross-
measure the effects with a difference-in-difference strategy. Banco Azteca opened more
than 800 branches simultaneously in 2002, focusing on low-income clients. The results
showed that the opening of Banco Azteca led to an increase in the number of informal
business owners by 7.6 percent.The research findings showed that expanding access to
Morawczynski (2009) examined the adoption, usage and outcomes of mobile (MPESA) in
Kenya. His qualitative work by suggested that incomes of rural mobile money transfer
recipients had increased due to remittances, which had also led to higher savings by the
Beck, Demirguc-Kunt and Peria (2010) collected and analyzed information from 209
around the world. They found out that barriers such as minimum account and loan
21
balances, account fees, and required documents were associated with lower levels of
banking outreach. While country characteristics linked with financial depth, such as the
systems, were weakly correlated with barriers, strong associations were found between
barriers and measures of restrictions on bank activities and entry, bank disclosure practices
and media freedom, and development of physical infrastructure. Barriers were higher in
countries where there were more stringent restrictions on bank activities and entry, less
disclosure and media freedom, and poorly developed physical infrastructure. Also, barriers
for bank customers were higher where banking systems were predominantly government-
owned.
Ellis, Alberto and Juan-Pablo (2010) study showed that access to financial services enables
households to invest in activities that are likely to contribute to higher future income and,
therefore, to growth. People borrow and save for a range of investment purposes, even in
the poorest groups. Rural inhabitants save and borrow more for agricultural investments,
while urban inhabitants tend to save and borrow more for other purposes, such as starting a
business. Individuals with a better education are more likely to borrow, save and invest
than those with less education. Econometric analysis using data from the 2009 Kenya
FinAccess survey showed that people who borrow specifically to invest are 16 percentage
points more likely to use formal financial services than those who borrow for consumption
purposes, after taking other possible factors into account. Similarly, people who save to
invest are 10 percentage points more likely to use formal financial services than people
who save for consumption purposes. This suggests that formal financial services are more
22
suitable for investment purposes than other forms of provision. Individuals who cite supply
side barriers to accessing a bank account are 4 percentage points le than people who do
not. They are also 6-8 percentage points less likely to borrow for investment purposes,
which suggest that access to a bank account may play an important role in helping
individuals to access credit. These results represent the first concrete, quantitative
Beck (2010) analyzed FinAcess 2009 data for the drivers and determinants of access to
finance across countries and at Kenyas the individual level and found out that the use of
formal financial services in Kenya is at similar levels as in other East African countries,
but below that of several countries in Southern Africa. However the share of population
that is completely excluded from any formal or informal financial service is lower in
Kenya than in any other country except for South Africa. The use of formal banking and
other formal financial services has increased significantly between 2006 and 2009, driven
by higher use of transaction services, especially M-PESA, and higher use of MFIs and
banks. While the use of formal banking and other formal financial services has increased
across all population groups, men are more likely to use to formal financial services than
women. Urban Kenyans are more likely to use formal financial services than rural
Kenyans; gains in use of formal financial services have been more prominent in urban than
in rural areas. While low income is still the most prominent barrier for the unbanked,
prominence compared to 2006. M-PESA has revolutionized the remittance market and has
expanded the access frontier. The challenge being to link unbanked M-PESA users to other
23
financial services. When comparing the predictive power of different factors; income,
education, age, geographic location and employment status are strong predictors of the use
of financial services, while gender, risk aversion and numeracy are not.
Chaia, Aparna, Tony, Maria and Robert (2010) under the Financial Access Initiative found
out that almost all of the 2.5 billion people in the world lacking access to financial services
reside in Africa, Asia, and Latin America and the majority (60%) of these adults resided in
East and South Asia. Based on the population breakdown by income level the researchers
found that out of a population of 1.2 billion adults using formal financial services, a third,
or 800 million people are in the lowest income category (i.e. living on under $5/day). The
researchers found that apart from socioeconomic and demographic factors, the main
drivers of inclusion were an effective regulatory and policy environment and enabling the
Sarma and Pais (2010) examined the relationship between financial inclusion and
development by empirically identifying country specific factors that are associated with the
level of financial inclusion. They found that levels of human development and financial
inclusion in a country move closely with each other. Among socio-economic and
infrastructure for connectivity and information were important. The health of the banking
sector did not seem to have an unambiguous effect on financial inclusion whereas
24
Mbiti and Weil (2011) found that the major use of M-PESA is for transfers and that there
is relatively little storage of value. At the same time, they also showed that a significant
number of survey respondents indicated that they use their M-PESA accounts as a vehicle
for saving. Mbiti and Weil also found evidence that M-PESA use decreases the use of
Nyasetia (2012) set out to establish the implications of financial deepening on savings and
between financial deepening and savings and investments in Kenya. He used secondary
conducted regression analysis to establish the relationship and found a strong positive
correlation between savings and investments. The study established that when there is
proper financial deepening, the level of savings and investments in Kenya also improve. If
interest rates are not favorable, if the stock market is not doing well, if deposits in banking
institutions are not growing, then there will be slow growth and improvement in savings
and investments.
Waihenya (2012) investigated the relationship between agent banking and financial
inclusion in Kenya. The study utilized descriptive survey research method. The study
investigated agent banking in Kenya with emphasis on the factors contributing to financial
exclusion, both natural barriers such as rough terrains and man-made barriers such as high
charges on financial services and limited access due to limited bank branches. The study
found out that agent banking is continuously improving and growing and as it grows, the
25
level of financial inclusion is also growing proportionately. The study findings showed that
increasing the area covered by agents within the country had the effect of increasing the
reach of the financial services to the people thus raising the levels of financial inclusion.
Ndege (2012) set out to establish the impact of financial sector deepening on economic
population for this study was 44 banking institutions operating in Kenya as at 31st
December 2011.During the period of the study (2007-2011), financial sector deepening
was high as the commercial banks strived to leverage their operations through adoption of
new technologies. The depth of the financial sector was found to promote economic
Latortue and Ardic (2013) in their financial access 2012 report which was based on eight
years data (2004-2011) showed the global strands taken on financial inclusion. High
income countries had 10 times the deposit penetration as low income countries, and lower
middle income countries having three times the deposit penetration of low income
countries there was a steady growth on the number of commercial bank branches and
ATMs. Low-income countries had 3.2 ATMs and 3.8 branches per 100,000 adults in 2011,
while high-income countries had 123 ATMS and 34 branches per 100,000 adults. The
number of insurance policies more than doubled since 2004; life insurance being the
26
2.3.1 Access to Financial Services
Empirical evidence suggests that improved access to finance is not only pro-growth but
also pro-poor, reducing income inequality and poverty. Cross-country studies have shown
that countries with more developed formal financial systems record faster declines in
Access to credit, savings and payment services provides opportunities for in income
through three channels: New economic opportunities: access to credit and information on
investments through the financial system allows poor people to invest in income-
generating activities. Manage risk: savings, insurance and credit allow poor people to
smooth their consumption, protect their assets and income against shocks and make lumpy
investments in housing, education and health. Facilitate exchange of goods and services:
payments services help poor people remit money, trade in goods and services and reduce
The poor access financial services from three types of financial service providers, Informal
providers: including family, friends and money lenders, Informal unregulated financial
service providers: such as Rotating Savings and Credit Associations (ROSCA) and credit
unions, Formal financial institutions: regulated by general laws but not specific banking
laws including microfinance institutions and Savings and Credit Co-operatives (SACCOs)
and Formal deposit taking institutions regulated by specific banking laws such as banks
27
Increasing access to financial services through regulated providers is necessary to reduce
systemic risk and support financial sector deepening through the diversification of
financial instruments and financial institutions. However, there are a number of barriers to
the expansion of formal financial services including: Small-scale financial systems: the
total size of most formal financial systems in Africa is less than $1bn - equivalent to a
small bank in an industrialized country (Bossone, Honohan, and Long 2002). Small
financial systems are less competitive, less efficient, more costly to regulate than larger
financial systems. Physical access: typically, financial transactions by poor people are
in close proximity. Limited take-up: servicing costs, including fees and minimum account
requirements, can be prohibitive for poor clients while formal financial products are not
suited to the low and erratic incomes of the poor. Poor people may lack knowledge of
financial services or the skills to use them effectively. Information asymmetries: the poor
often lack official identification documents, records of their financial transactions and
Mobile banking has been the most effective driving factor towards greater financial
inclusion in Kenya. It is refers to the provision banking and financial services through
mobile technology and the scope of services offered may include facilities to conduct bank
and stock market transactions, as well as enabling users to access customized information.
Access and the cost of mainstream financial services act as a barrier to financial inclusion
28
for many in the developing world. The convergence of banking services with mobile
technologies means however that users are able to conduct banking services at any place
and at any time through mobile banking thus overcoming the challenges to the distribution
The available mobile banking options in Kenya are M-PESA launched in 2007 by
Safaricom. The name M-Pesa is derived from M for mobile and Pesa for money in
Swahili. This is the most popular and widely used with a market share of 80%. Others
include Airtel Money, Mobicash, Orange money, Yu-cash, Elma, Pesa-Pap and Pesa-
According to Williams and Torma, mobile transactions can simultaneously enhance the
outreach of financial services, reduce information asymmetries and provide relatively low
cost informational and transactional financial products. It therefore has the potential to
transform the access to finance for a significant number of people. It brings closer to reality
the aspiration to provide mass access to finance to all countries and income groups
Branches have been the traditional bank outlet. Hence geographic distance to the nearest
branch, or the density of branches relative to the population, can provide a first crude
Kunt, and Martinez Peria 2007b). Mobile banking presents an opportunity for banks to
expand without necessary opening new branches. It offers a potential solution for the
29
millions of people living in the rural Kenya that have access to a cell phone, yet remain
Several indicators have been used in the literature to assess the extent of financial
inclusion. Financial access can broadly be divided into two broad categories; one based on
the supply side information from the perspective of credit providers, such as banks and
other service providers. The other based on demand side information from the perspective
measuring financial inclusion are: number of bank accounts (per 1000 adult population),
number of bank branches (per million people), number of ATMs (per million people),
amount of bank credit and amount of bank deposit. However, these indicators of financial
access provide only partial information on the inclusiveness of the financial system of an
economy and thus, in turn, fail to capture adequately the overall extent of financial
inclusion. Formally included households are considered those who use financial services
appropriate policy measures for bringing about a more inclusive society in terms of the
inclusion is conditioned upon a numbers of factors: some are social, some are economic,
30
Laha (2011) sort to identify the broad determinants of financial inclusion in some selected
districts of west Bengal, India. Empirical results using Bivariate Probit model showed that
asset level of the household, as determined by the operated land holding, significantly
enhances the probability of becoming a bank customers and the existence of information
Kumar (2011) assessed the behavior and determinants of financial inclusion in India. The
study found that the factory proportion and employee base were considered as the
significant variables indicating that income and employment generating schemes lead the
public to be more active, aware, interested with regard to banking activities, which
Singh & Kodan (2012) analyzed the relationship between financial inclusion and
development to identify factors associated with financial inclusion. With the help of
Regression he found that per capita NSDP and urbanization were significant explorers of
financial inclusion while the literacy, employment and sex-ratio were not statistically
Chithral and Selvam (2013) in their attempt to identify and analyze the determinants of
financial Inclusion carried out empirical analysis that revealed that socio-economic factors
like Income, Literacy and Population were found to have significant association with the
information were also significantly associated with financial inclusion. Among the banking
variables deposit and credit penetration were found significantly associated with financial
31
inclusion. Finally, Credit-deposit ratio and Investment ratio were not significantly
Early financial deepening theories emphasized the need to increase savings in order to
stimulate investment and help emerging economies achieve catch-up growth, with poverty
reduction to follow. Evidence to support the effectiveness of this approach has been mixed.
It was quickly overtaken by the global microfinance movement, which promotes the
benefits of direct financial service provision to the poor. Many financial inclusion
promoters now agree that direct access to finance services can improve individual
livelihoods amongst the poor by enabling them to manage scarce resources more
development both theoretical and empirical are relatively recent and fragile. Most of these
studies have been recent and cross county. Indeed, there is good reason to ask us questions
about the relationship between financial inclusion and economic development in particular
emphasis to Kenya. This study therefore seeks to fill the eminent knowledge gap on the
32
CHAPTER THREE:
RESEARCH METHODOLOGY
3.1 Introduction
generalizations and formulation of a theory is also research. As such the term research
hypothesis, collecting the data, analyzing the facts and reaching certain conclusions either
in the form of solutions(s) towards the concerned problem or in certain generation for
Kothari (2004) describes a research design as the conceptual structure within which the
research is conducted; it constitutes the blueprint for the collection, measurement and
analysis of data. It specifies the methods and procedures for collecting and analyzing the
needed information. In this proposal, I will comprehensively carry out a Meta analysis
study. My proposal will effectively explore the descriptive technique. Descriptive research
33
Meta-analysis is a statistical technique to quantitatively synthesize the empirical evidence
from different studies, in the hope of identifying patterns among study results, sources of
disagreement among those results, or other interesting relationships that may come to light
in the context of multiple studies. (Greenland, O'Rourke 2008).In this proposal, I am seeking
to investigate and substantiate the relationship between financial inclusion and economic
finance and economics phenomena, since it is proving to be useful for policy evaluation
(Stanley, 2001). In this context a Meta-analysis analysis approach is justified as the most
effective statistical technique to correlate both the dependent and independent study
variables in my proposal.
Data collection is gathering empirical evidence in order to gain new insights about a
situation and answer questions that prompt undertaking of the research (Kothari, 2004). In
my proposal I will be utilizing secondary data from International Monetary Fund and
Unites Nations Development Program (UNDP) for a period of 7 years from the year 2005
to 2011. Secondary data is data that has been collected, analyzed and made available from
sources other than you (White, 2010). Collecting and analyzing primary data can be
34
3.4 Data Analysis
Secondary data from various developmental and financial annual reports will be reviewed
Mugenda (1999), data must be cleaned, coded and properly analyzed in order to obtain a
meaningful report. The secondary data will be analyzed using descriptive statistical
approach, regression, correlation analysis. The excel software will be used to transform
the variables into a format suitable for analysis after which the statistical package for social
sciences for data analysis (SPSS) will be used, which will provide various statistics when
applied to analyze the quantitative data in terms of graphs and tables whose results would
facilitate comparison. The unit of analysis will be the various annual developmental reports
and library analyzed over a period of 7 years from the year 2005 to 2011.
Y=f(x) (1)
Yi = 0 + X1 + X2 + X3 + + Xn + (2)
Where
Y= Dependent variable is (Development) The most widely used development index is the
35
X= Independent variable (Financial inclusion) whereby as measured by the various
0= Constant term
2 tailed T-test will be performed to test the significance of the coefficients on the
hypothesis
indicators in Kenya
indicators in Kenya
36
CHAPTER FOUR
4.1 Introduction
This chapter discusses and presents the analysis and their interpretations. The analysis
results presented include descriptive statistics, correlation tests, multiple regression and
The Human Development Index (HDI) is a composite measure of health, education and
alternative to purely economic assessment of national progress, such as GDP growth and
serves as a frame of reference for both social and economic development. It is prepared
underdeveloped and also to measure the impact of economic policies on quality of life. The
Human Development Index (HDI) was chosen as the best representative measure of the
dependent variable economic development in Kenya. Data was collected from the HDI
37
.52
.51
.50
.49
.48
.47
.46
2005 2006 2007 2008 2009 2010 2011 . . .
Years
Kenya is considered is a developing country and its Human Developmental Index is above
the average of other Sub Saharan countries however below the average of the worlds
.8
.7
.6
.5 Kenya
Low HDI
.4
.3 w orld
2000 2005 2006 2007 2008 2009 2010 2011 2012 .
Years
4.2b: A graph showing the trend of Human Development Index for Kenya as compared to
other countries
38
4:2.2 Financial Inclusion
Financial inclusion is measured by various measures, the two most widely used measures
of accessibility the number of bank accounts (per 1000 adult population) and the number
of bank branches and ATMS (per 100,000 people). The proxy used for the usage
dimension of financial inclusion is the amount of bank credit and amount of bank deposit.
The data on the number of bank accounts (per 1000 adult population) and the number of
bank branches and ATMS (per 100,000 people) was collected as prepared by International
Monetary Fund and also Financial Access survey yearly reports on Kenya for the period
between 2005 and 2011. For each country its calculated based on the reported number of
depositors per 1000 adult population and the number of financial institutions branches and
700
600
500
400
300
200
100
0
2005 2006 2007 2008 2009 2010 2011 . . .
Years
4.2c: A graph showing the trend of the number of bank accounts (per 1000 adult
population) in Kenya
39
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
2005 2006 2007 2008 2009 2010 2011 . . .
Years
4.3b: A graph showing the trend of the number of bank branches (per 100,000 people) in
Kenya
The amount of bank credit and amount of bank deposit refers to the financial resources
provided to the private sector by domestic money banks as a share of total deposits.
Domestic money banks comprise commercial banks and other financial institutions that
accept transferable deposits, such as demand deposits. Total deposits include demand, time
and saving deposits in deposit money banks. Data was collected from the electronic
40
84
82
80
78
76
74
72
2005 2006 2007 2008 2009 2010 2011 . . .
Years
4.3c: A graph showing the trend of the amount of bank credit to amount of bank deposit as
a percentage in Kenya
The study sought to test the relationship between financial inclusion and economic
41
4.4.1 Pearson Correlations
The Pearson correlation matrix highlights that there is a significant correlation between the
dependent variables (HDI) and independent variable Number of Bank branches and
42
4.4.2 Partial Correlation
Partial correlation
Variables (Pearsons r)
(Constant)
The Partial correlation matrix highlights that there is also a significant correlation between
the dependent variables (HDI) and independent variable Number of Bank branches and
Regression analysis is a statistical process for estimating the relationships among variables.
It includes many techniques for modeling and analyzing several variables, when the focus
is on the relationship between a dependent variable and one or more independent variables.
Our research objective is to determine the relationship between financial inclusion and
economic development, thus regression analysis is one of the best analytical models to
43
4.5.1 Regression Model
A multivariate regression model was used to determine the relative importance of each of
Y=f(x) (1)
Yi = 0 + X1 + X2 + X3 + + Xn + (2)
Where
0= Constant term
44
= Error term within a confidence interval of 5%
From table 3 we obtain the values for regression equation which can be presented as
follows:
0.012 3= -0.012
The regression equation clearly shows that the number of the number of bank accounts (per
1000 adult population) and the number of bank branches (per 100,000 people) have a
positive relationship with HDI. Therefore an increase number of the number of bank
accounts (per 1000 adult population) and the number of bank branches (per 100,000 people
will lead to increase in HDI by the proportion of the ratios 1(0.00002478) and 2(0.012).
45
Where else he amount of bank credit to amount of bank deposit (%) reveals a negative
relationship thus its increase will lead to decrease in HDI by the proportion of 3( -0.012).).
.52
.51
.50
.49
.48
.47
-1.5 -1.0 -.5 0.0 .5 1.0 1.5
4.5 b: A scatter plot showing the relationship between the dependent and standardized
independent variables
To test the significance of the coefficients a t-test was performed on the null hypothesis
that the coefficient/parameter is 0. Since this was a 2 tailed test, we compared each p value
to the preselected value of alpha which was 0.05(5%). Coefficients having p value less
than alpha are usually significant. In our analysis the statistically significant coefficients
46
are 0 and 2 which have p-values of .000 and .028 respectively, while 1(p-value=217)
and 3 (p-value=.127) are not significantly different from zero. This therefore means that
the coefficients are 0 and 2 can significantly explain the proportion that Y changes due
to change in X.
To test the ability of the independent variables in determining the dependent variables the
measure of R square is used. A value above 0.5 of R-square means that the predictors are
able to explain a great proportion of variance in dependent variable. The value test of R-
According to table 4 the R square which is 0.989 depicts that the independent variables
independent variables explain better the change in dependent variables. Since some of this
increase in R-square would be simply due to chance variation in that particular sample, the
47
adjusted R-square attempts to yield a more honest value to estimate the R-squared for the
population. From the above table a high value of adjusted R square (0.979) further shows
ANOVA table shows results of analysis of variance, sum of squares, degrees of freedom
(df), mean squares, regression and residual values obtained from regression analysis. The
shown by the Analysis of Variance (ANOVA test) as illustrated in the table below:
Sum of
Squares df Mean Square F Sig.
Regression .002 3 .001 92.625 .002(a)
Residual .000 3 .000
Total .002 6
a Predictors: (Constant), Amount of bank credit to deposits (%), Number of bank branches,
In this case the p value (0.002) is less than 0.05 (confidence level) and therefore we reject
the null hypothesis and conclude that there exists a significant relationship between the
independent and dependent variables and thus the independent variable reliably predicts
In multiple regression analysis we usually assume that the predictors entered into the
regression equation are not perfectly correlated with one another. Collinearity is therefore
the existence of bivariate correlations within the independent variables. To measure this
aspect the researcher used variance inflation factor (VIF) and tolerance. The variance
inflation factor (VIF) provides us with a measure of how much the variance for a given
other hand tolerance is the reciprocal of VIF. Perfect collinearity exists when tolerance of
one independent variable is 0.000, according to table 3 this scenario does not occur. Even
though there exists collinearity as evident by low values of tolerance of X1 and X2 it is not
perfect and therefore SPSS doesnt eliminate any of the three independent variables.
4.6 Summary
From the above correlation and regression analysis there is an apparent strong relationship
between the two major indicators of financial inclusion ie the number of bank accounts and
(per 1000 adult population) and the number of bank branches (per 100,000 people). The
amount of bank credit to amount of bank deposit (%) though not strongly related is also an
49
CHAPTER FIVE
5.1 Introduction
This chapter summarizes the findings, draws conclusions relevant to the research and
makes recommendations
From the Pearson correlation tests, the analysis showed that HDI is positively correlated
significantly with both the number of the number of bank accounts (per 1000 adult
population) and the number of bank branches (per 100,000 people) at 0.952 and 0.985 (r
<0.01) 2 tailed . The amount of bank credit to amount of bank deposit (%) though not
strongly related is also an indicator of financial inclusion. The partial correlation matrix
also highlighted the strong correlation of the number of bank accounts and (per 1000 adult
population) and the number of bank branches (per 100,000 people) at 0.699 and 0.918
(r<0.05). The amount of bank credit and amount of bank deposit though had a negative
with -0.771
The regression analysis also established that the number of bank accounts (per 1000 adult
population) and the number of bank branches (per 100,000 people) have a positive
relationship with HDI. Therefore an increase number of the number of bank accounts (per
1000 adult population) and the number of bank branches (per 100,000 people) will lead to
50
increase in HDI by the proportion of the ratios 1(0.00002478) and 2(0.012). Where else
he amount of bank credit to amount of bank deposit (%) reveals a negative relationship
thus its increase will lead to decrease in HDI by the proportion of 3( -0.012).
The test of coefficients statistical significance revealed that the coefficients 0 and 2 can
significantly explain the proportion that HDI changes due to change in financial inclusion
indicators ie number of the number of bank accounts (per 1000 adult population) and the
number of bank branches (per 100,000 people) and the amount of bank credit to amount of
bank deposit.
From the adjusted R square measure, the analysis revealed that the independent variables
chosen were suitable for predicting the dependent variable at an R square of (0.979).
From the ANOVA tables we the p value was at (0.002) and is less than 0.05 (confidence
level) and therefore we rejected the null hypothesis and concluded that there exists a
significant relationship between the independent and dependent variables and the
In multiple regression analysis we usually assume that the predictors entered into the
regression equation are not perfectly correlated with one another. Collinearity is therefore
the existence of bivariate correlations within the independent variables. Perfect collinearity
exists when tolerance of one independent variable is 0.000, according to table 4.5a this
scenario does not occur. Even though there exists collinearity as evident by low values of
51
tolerance of the number of the number of bank accounts (per 1000 adult population) and
the number of bank branches (per 100,000 people) it is not perfect and therefore SPSS
5.3 Conclusion
ability of people to engage in economical activities that lead to development. The study has
reinforced this hypothesis and we can conclude that by increasing financial access we can
that the number of the number of bank accounts (per 1000 adult population) and the
number of bank branches (per 100,000 people) have a positive relationship with HDI at
0.952 and 0.985 (r <0.01) 2 tailed and thus by increasing this two financial access
The amount of bank credit to amount of bank deposit (%) had a negative with -0.771 this
could be due to the fact as a measure of the second dimension of financial inclusion usage,
usage is beyond the basic adoption of banking services, usage focuses more on the
permanence and depth of financial service and product use. Hence determining usage
requires more details about the regularity, frequency, and duration of use over time. To
measure usage, it is critical that information reflect the users point of view, that is, data
gathered through a demand-side survey rather than the supply side as collected from the
financial institutions
52
Along with various poverty eradication and employment generation programmes be the
ameliorating poverty this can be viewed from the use of the human development index
which is a composite measure of health, education and income as opposed to GDP. The
analysis showed that by increasing financial inclusion you also increase human
development index which is a measure of for both social and economic development.
5.4 Recommendations
The study examined the relationship between financial inclusion and economic
development. Financial inclusion plays a vital role in development and it is important that
the government recognizes the vital role played by financial inclusion and develops
The government can also through its role in regulation create a regulatory framework that
encourages financial inclusion, this it has already done by allowing mobile telecoms to
operate money transfer system without having to comply to central bank banking
regulations. More of such efforts should be encouraged to allow more people to access
financial services. In Sweden and France, banks are legally bound to open an account for
Data collection is vital for measuring the most effective financial inclusion initiatives and
their effects as well as helping to shape financial inclusion policy of the government, I
53
would recommend that more data is collected on the various indicators of financial
inclusion as well as disaggregated data on the regions and counties to allow effective
Innovative technological financial inclusion has proved to be the most effective measure of
expanded to offer more value added financial services to the recipients to enhance
availability of the full set of financial services which lead to full financial inclusion.
Financial inclusion involves the delivery of banking services at an affordable cost to the
vast sections of disadvantaged and low income groups. Currently one of the major
hindrances to expansion of financial services to the poor rural areas is the cost involved in
financial institutions setting up branches in the rural areas. Incentives should be availed to
banks and other financial institutions to increase their rural area branch network through
the county government or central bank. Growing theoretical and empirical evidence as outlined
above suggest that financial systems that serve low-income people promote economic
development
The banking sector can also be encouraged to adopt banking initiatives that are aimed at
increasing the number of people who hold bank accounts. Countries like India through
their No frills, Germany with Everyman and South Africa with their Mzansi
54
5.5 Limitations of the Study
Although this study contributes to the body of literature on various dimensions, the results
are not conclusive, the extent to which findings can be generalized beyond the sample
The study period covered a period of 7 years due to the unavailability of data for the period
before 2005 .It would therefore be desirable to extend the present study by complementing
it with other studies using other statistical methods and including comparative data. The
inclusion of other financial inclusion determinants would also improve the reliability of the
Correlations and regression are bivariate and multivariate in nature meaning that two or
three variables from different data sets are compared at a time. However, this is not
realistic because there are almost always multiple relationships and effects on something.
formulated policy objectives. On other occasions, as is in this study some indicators may
introduce distortions i.e. the negative correlation of financial inclusion to the amount of
bank credit and bank deposits, as discussed earlier the use of this measure as a proxy for
the dimension of usage in financial inclusion did not reflect the users point of view, the
data used should have been from the demand side surveys.
Two important dimensions of financial inclusion have not been analyzed in this research
due to the serious methodological challenges in the survey design required, this are quality:
55
the relevance of the financial service or product to the lifestyle needs of the consumer and Impact:
measure of changes in the lives of consumers that can be attributed to the usage of a financial
device or service.
The use of disaggregated analysis is suggested as the next frontier for research and analysis
in this subject matter. It would be interesting to analyze a similar study but disaggregated
for the various regions or counties in Kenya to determine access and look for means to
improve it.
Financial inclusion can be determined by various indicators, reliable and comprehensive data
that captures the various dimensions of financial inclusion is critical for evidence-based
policymaking. I would suggest research to be carried out on the other financial inclusion
variables such as available choices of financial service providers and the consumers
understanding of these choices to enable the government make better financial inclusion
policies.
Measuring and monitoring levels of financial inclusion, deepening our understanding about
factors that correlate with financial inclusion and, subsequently, the impact of policies is
very important. It is also important to translate the concept of financial inclusion into
operational terms to allow tracking progress and measuring outcomes of policy reforms.
Research should be carried out on levels and factors of financial inclusion as well as how
56
There are two other dimension of financial inclusion apart from access and usage as
discussed and analyzed above this are quality: the relevance of the financial service or
product to the lifestyle needs of the consumer and Impact: measure of changes in the lives
of consumers that can be attributed to the usage of a financial device or service. Further
research should be carried out in these two dimensions of financial inclusion and their
inclusion policies.
Despite the considerable progress made by microfinance institutions, credit unions, and
savings cooperatives over the last two decades, the majority of the worlds poor remain
unserved by formal financial intermediaries that can safely manage cash and intermediate
between net savers and net borrowers. Microfinance institutions, credit unions, and savings
makers and other stakeholders seek new initiatives for financial inclusion.
Cross county studies on access of financial services should be carried out as well as on
effectiveness of various financial inclusion measures to allow various countries share the
individual countries
57
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APPENDIX I
65
APPENDIX II
Bank credit to The financial resources Raw data are from the 1960- International Financial
X3 bank deposits
(%)
provided to the private
sector by domestic money
electronic version of the
IMFs International
2011 Statistics (IFS) -
International Monetary
banks as a share of total Financial Statistics. Private Fund (IMF)
deposits. Domestic money credit by deposit money
banks comprise banks (IFS line 22d); bank
commercial banks and deposits (IFS lines 24 and
other financial institutions 25). (International
that accept transferable Monetary Fund,
deposits, such as demand International Financial
deposits. Total deposits Statistics)
include demand, time and
saving deposits in deposit
money banks.
(International Monetary
Fund, International
Financial Statistics)
66
APPENDIX II
67
Country Year GFDD.AI.01 GFDD.AI.02 GFDD.SI.04
68
Country Year
GFDD.AI.01 GFDD.AI.02 GFDD.SI.04
69
Country Year
GFDD.AI.01 GFDD.AI.02 GFDD.SI.04
70