Financial Inclusion in East Africa: Does Economic Growth Matter?

Abstract

Inclusive financial systems in any economy cannot be ignored. In fact, it has become a policy strategy in many governments around the world, including East Africa region economies – Kenya, Uganda and Tanzania. Using panel data, this study presents a cross country analysis of the variables that determine financial inclusion levels with a key focus on economic growth through demand leading hypothesis. The study sought to test if economic expansion matters in financial inclusion in East Africa for the period 2006-2019. Panel ordinary least squares regression technique and fixed effect estimation method were adopted during the analysis. Following the findings of the study, economic growths depict a considerable influence on the financial access rate in East Africa. The corroboration presented by this study may help the respective countries to adopt policies that focus on improving financial inclusion levels through sustained economic growth.

The Determinants of Financial Inclusion

“…This implies that as the economic wellbeing of the people of East Africa improves so does their capacity to access and use financial products and services. This is in line with the outcome found by Sarma and Pais (2008), Zins and Weill (2016), and Thomi and Mose (2021). The result is in agreement with the demand leading hypothesis, which portrays lagged response towards the growth of the economy (Patrick, 1966;Thomi & Mose, 2021).…”

“…This is in line with the outcome found by Sarma and Pais (2008), Zins and Weill (2016), and Thomi and Mose (2021). The result is in agreement with the demand leading hypothesis, which portrays lagged response towards the growth of the economy (Patrick, 1966;Thomi & Mose, 2021). These basically imply that economic growth creates demand for financial products.…”