The Impact Of Financial Inclusion On Poverty Reduction in Some Selected Sub-Saharan Africa Countries

ABSTRACT

This study set out to examine the impact of financial inclusion in poverty reduction in SubSaharan Africa. Using a representative sample of 40 countries from the region covering a period from 2010 to 2014, the study examines the level of financial inclusion among the countries in the region. Sarma’s (2008) approach was used in computing the index of financial inclusion for the 40 countries in the study. The study also examines the factors that determine financial inclusion in Sub-Saharan Africa and finally, how financial access affects poverty reduction in the region. The study is quantitative in nature and made use of econometric models in the estimations. The findings of the study indicate that, most countries in Sub-Saharan Africa have medium financial economies and over the study period, only four countries fall within the high financial economy namely: - Cabo Verde, the Seychelles, Sao Tome and Principe; and Nigeria. Secondly, the findings suggest that, Gross National Income (GNI) per capita and remittances are the main determinants of financial inclusion in the region, meaning that per capita income is the main factor for determining financial inclusion in Sub-Saharan Africa and that involuntary financial exclusion in the region may be determined greatly by inadequate household income and high-risk profile rather than market failures and weak implementation of contractual agreements. Moreover, the findings also clearly suggest that financial access does not have any meaningful impact on poverty reduction in the region but credit to private sector by domestic banks (financial depth) significantly reduced poverty in Sub-Saharan Africa. xii Based on the empirical findings, the study makes the following recommendations for both policy making and implementation. First based on the finding that per capita income is the major determinant of financial inclusion and involuntary financial exclusion is greatly influenced by insufficient household income and high risk profiling in Sub-Saharan Africa, the region’s policy makers and leaders must develop policies and conduct research that centre on involuntary exclusion as it can be solved by suitable economic programmes and strategies which can be intended to increase income levels and correct market failures and imperfections. Secondly, the various governments in the region should have policies towards reducing the rapid population growth since it reduced the level of financial inclusion. The region, as a matter of urgency must put policies in place to integrate mobile money technology fully with the formal financial system since the mobile money technology has a great potential to help the region achieve some appreciable level of financial inclusion. But currently the mobile money technology (ICT) is significantly reducing level of formal financial sector in Sub-Saharan Africa. Finally, the findings suggest that financial inclusion in Sub-Saharan Africa does not significantly reduce poverty, but rather it is credit to the private sector (financial depth) that has significant impact of reducing poverty in the region. To lower poverty levels in SubSaharan Africa, policymakers should devise strategies that will resolve obstacles to financial development (financial depth). For this to be effective, the role of microfinance is very important.