Financial Inclusion and Poverty Reduction in Sub-Saharan Africa

Abstract

Financial inclusion is believed to favour mainly low-income groups such as the poor. Despite the proposition in theoretical literature that financial inclusion can bring a lot of welfare benefits to the poor, empirical investigation to that effect is rather scant (little). Using 35 countries and almost 35,000 individuals, this study explored determinants as well as the effect of financial inclusion on poverty reduction in Sub-Saharan Africa. We employed Treatment Effects version of the Heckman Sample Selection Model and Propensity Score Matching (PSM) for robustness checks. The results of the probit models show that high education, high income level, age, informal borrowing such as borrowing from employers and money lenders significantly influence financial inclusion. However, the results suggest that females are less likely to be financially included than their male counterparts. The results of the Treatment Effect Model reveals that those who are highly educated, whose relative owns an account, and those who have other sources of funds such as (family/friends, employers and money lenders) are less likely to be poor. However, being a female and borrowing from stores are less likely to reduce poverty. The net wealth benefit derived from financial inclusion (thus use of accounts, savings, withdrawals and access to credit) significantly reduces poverty. Verifying the ―Treatment Effects‖ using the PSM, we find that financial inclusion has a larger welfare benefit for the poor than their non-poor counterparts in all the financial inclusion indicators we used. Since financial inclusion is found to have a significant poverty reducing effect, we recommend that governments of Sub-Saharan African countries should mainstream financial inclusion in their poverty reduction strategies and programmes.