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THE RELATIONSHIP BETWEEN FINANCIAL INCLUSION AND ECONOMIC

DEVELOPMENT IN KENYA

ELIZABETH WANGUI WANGOO

D61/71243/2008

A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS

ADMINISTRATION, UNIVERSITY OF NAIROBI

OCTOBER 2013
DECLARATION

This research project is my own original work and has not been submitted for examination in any

other university

Signature ................................. Date .........................................

ELIZABETH WANGOO

D61/71243/2008

This research project has been submitted for examination with my approval as the university

supervisor

Signature ................................. Date .........................................

MIRIE MWANGI

Lecturer, Department of Finance and Accounting

University of Nairobi

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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

God bless you all

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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

CHAPTER ONE: INTRODUCTION..............................................................................................1

1.1 Background of the study............................................................................................................1

1.1.1 Financial Inclusion..................................................................................................................2

1.1.2 Economic development...........................................................................................................6

1.1.3 Financial Inclusion and Economic development....................................................................6

1.1.3 Financial Inclusion and Economic development in Kenya.....................................................8

1.2 Research problem.....................................................................................................................10

1.3Research Objectives .........12

1.4 Value of the Study ..............13

CHAPTER: TWO LITERATURE REVIEW........14

2.1 Introduction......14

2.2 Theoretical Framework .......14

2.2.1 Classical Economics Theory.14

2.2.2 Keynesian Economic Theory16

2.2.3 Keynesian Theory II.17

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2.3 Review of Empirical research..........18

2.3.1 Access to Financial Services.27

2.3.2 Mobile Financial Services in Kenya.28

2.3.3 Determinants of Financial Inclusion.30

2.4 Summary of Literature Review ...32

CHAPTER THREE: RESEARCH METHODOLOGY....33

3.1 Introduction .....33

3.2 Research Design.......................33

3.3 Data Collection34

3.5 Data analysis........35

CHAPTER FOUR: DATA ANALYSIS AND PRESENTATION OF FINDINGS..37

4.1 Introduction.37

4.2 Human Development Index.....37

4.3 Financial Inclusion...39

4.4 Correlation Analysis....41

4.4.1 Pearson Correlation...42

4.4.2 Partial Correlation.43

4.5 Regression Analysis.43

4.5.1 Regression Model.44

4.5.2 Test of Coefficients Statistical Significance T-test...46

4.5.3 Test of Prediction of Ability of Variables46

4.5.4 Analysis of Variance (ANOVA)..48

4.5.5 Test of Collinearity...49

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4.6 Summary of data analysis49

CHAPTER FIVE:

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS50

5.1 Introduction..50

5.2 Summary of Findings...50

5.3 Conclusion...52

5.4 Recommendation 53

5.5 Limitation.55

5.6 Suggestions for future research56

REFERENCES..58

APPENDICES...64

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LIST OF TABLES

4.4a Pearson correlation of financial inclusion and HDI

4.4a Partial correlation of financial inclusion and HDI

4.5a: Regression analysis (Model summary)

4.5 c: R square measure

4.5 d: Regression analysis (ANOVA)

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LIST OF FIGURES

4.2a: A graph showing the Human development index trend of Kenya

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

AFI - Alliance for Financial Inclusion

ATMS - Automatic Teller Machine

CGAP - Consultative Group to Assist the Poor

FSDK - Financial Sector Deepening Kenya

GDP - Gross Domestic Product

FAS - Financial Access Surveys

FI - Financial Inclusion

HDI - Human Development Index

IFI - Index of Financial Inclusion

IMF - International Monetary Fund

M-Pesa - M-Pesa is derived from M for mobile and Pesa for money in Swahili.

MFI - Micro Finance Institutions

MDGs - Millennium Development Goals

MSMEs - Micro,Small and Medium-sized Enterprises

ROSCA - Rotating Savings and Credit Associations

SACCO - Savings and Credit Co-operatives

SPSS - Statistical Package for Social sciences

UNDP - United Nations Development Program

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CHAPTER ONE:

INTRODUCTION

1.1 Background of the Study

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

of providers, in a stable, competitive market to financially capable clients. Through a

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).

Financial deepening is sometimes used as a synonym for financial inclusion however it is

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
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participates. It is essentially the process of increasing financial intermediation or

engagement within the financial system (Ardic & Damar, 2006).

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,

insurance, and investment instruments. Sustained long-term economic progress at both

household and economy- wide levels depends on access to financial products and services.

Access to financial services is a fundamental driver of increased household income and

resilience in an increasingly shock-prone global economy (Stijn Honohan, and Rojas-

Suarez, 2009).

1.1.1 Financial Inclusion

According to Asli Demirguc-Kunt (2008) financial inclusion or broad access to financial

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

inclusion includes the following traits: affordability, convenience, product-fit, safety,

dignity of treatment, and client protection. Financial inclusion involves provision of the

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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

allows households to use future income to manage current vulnerabilities or to capitalize

on investment opportunities. Savings provide a safe and value-retaining place where

households can store funds, allowing them to tap into "past income" as needed. Insurance

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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

of these services, and therefore be available on a continuous basis. Access is difficult to

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).

Notwithstanding the fact that achieving all-encompassing financial inclusion requires

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

helping poor /vulnerable people save safely and securely

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1.1.2 Economic Development

According to Sen, (1999) development involves reducing deprivation or broadening

choice. Deprivation represents a multidimensional view of poverty that includes hunger,

illiteracy, illness and poor health, powerlessness, voicelessness, insecurity, humiliation and

a lack of access to basic infrastructure (Narayan, Patel, Schafft, Rademacher,and S.K

Schulte 2000). Seers (1979) argues that the purpose of development is to reduce poverty,

inequality, and unemployment.

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

restructuring of an economy to enhance the economic well being of a community. In the

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

specific efforts, business finance, marketing, neighborhood development, business

retention and expansion, technology transfer, real estate development and others. The main

goal of economic development is improving the economic well being of a community

through efforts that entail job creation, job retention, tax base enhancements and quality of

life.

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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

qualitative changes in the economy. It includes development of human capital, critical

infrastructure, regional competitiveness, environmental sustainability, social inclusion,

health, safety, literacy, and other initiatives. Economic development is a policy

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

1.1.3 Financial Inclusion and Economic Development

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

to risks and without a means to efficiently save or borrow money.

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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

standards of living of people leading to low economic development

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

term financial inclusion needs to be interpreted in a relative dimension depending on the

stage of economic development of a country For example, in a developed country

nonpayment of utility bills through banks may be considered as a case of financial

exclusion, however, the same may not (and need not) be considered as financial exclusion

in an underdeveloped nation as the financial system is not yet developed to provide

sophisticated services (Demirguc-kunt, Levine and Ross 2009).

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

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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

to those with attractive investment opportunities, regardless of other characteristicsfor

firms, size, ownership, and profitability do not matter; for households, current income,

wealth, education, gender, and ethnicity are irrelevant. Indeed, financial development can

reduce inequality as it broadens opportunities (Stijn, Honohan, and Rojas-Suarez (2009).

1.1.4 Financial Inclusion and Economic Development in Kenya

The access to financial services can be measured in the form of access to certain

institutions such as banks, cooperatives, non-banking finance companies, credit unions,

micro finance institutions, insurance companies or in terms of functions that institutions

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

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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

may be subject to theft or temptation, as well as family demands, whereas moneylenders

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

(Arnold, Beck, and Ellis, 2011).

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

banking models by commercial banks. (Arnold,Beck, and Ellis, 2011).

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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

government has also been instrumental in introducing appropriate regulations to facilitate

low-income banking and strengthen SACCOs and MFIs

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

formal sector jobs

1.2 Research Problem

There is a general consensus among economists that financial development spurs economic

growth. Nyasetia (2012) conducted regression analysis to establish the relationship

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between financial deepening and savings and investments in Kenya and found a strong

positive correlation between savings and investments. Theoretically, financial development

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

economic development in Kenya. This is an obvious gap in literature

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

greater equality of access.

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

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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

inclusion and economic development in Kenya

There exist disconnect between evidence on the effects of national financial depth and the

effects of household financial penetration (Beck, Demirg-Kunt and Levine, 2005).This

study aims at closing the of research gap on how financial inclusion influences the

individual welfare in terms of the social and economic development.

1.3 Research Objectives

The objective of this study is to investigate the relationship between financial inclusion and

economic development in Kenya

1.4 Value of the Study

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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

add to the theory of financial inclusion as it gains preeminence as a vital aspect of

economic development of any country.

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

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 by leaders

in developing and developed countries and is emerging as a priority issue on political

agendas (Chetty, 2013).

Researchers and students particularly those pursing postgraduate studies in Finance,

Economics and Accounting will find this study useful in their quest to understand financial

inclusion and economic development.

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

both public and private sector organizations and players.

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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

entrepreneursand small enterprises must rely on their limited earnings to pursue

promising growth opportunities. This can contribute to persistent income inequality and

low economic development (Demirguc-Kunt & Levine 2009).

2.2 Theoretical Framework

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

acceptance of the theories that it depends on .To theoretically define is to create a

hypothetical construct

2.2.1 Classical Economics Theory

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
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set-up where the economy was to be left to operate on its own where forces of supply and

demand interact to bring about an equilibrium state in the economy of a country.

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

innovation and future growth by identifying and funding productive investments.

Schumpeter (1912) is very explicit on this score: The banker, therefore, is not so much

primarily the middleman in the commodity purchasing power as a producer of this

commodity. He argued that the services provided by financial intermediaries Mobilizing

savings, evaluating projects ,managing risks, monitoring managers and facilitating

transactions are essential for technological innovation and economic development.

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

physical capital. Further, the predetermined component of financial development is

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robustly correlated with future rates of economic growth, physical capital accumulation,

and economic efficiency improvements.

2.2.2 Keynesian Economic Theory

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

this as a function of current institutional structure, which is not necessarily given.

Keynesian economic relies on government spending to jumpstart a nation economic

growth during sluggish economic downturns. Similar to classical economists, Keynesians

believe the nation economy is made up of consumer spending, business investment and

government spending.

Keynesian economics often focuses on immediate results in economic theories. Policies

focus on the short-term needs and how economic policies can make instant corrections to a

nations economy. During economic recessions and depressions, individuals and

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

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end these downturns through monetary or fiscal policies providing in aggregate demand

and that will increase the level of output.

In the Keynesian theory, financial deepening or inclusion occurs due to an expansion in

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

government intervention in credit allocation in developing countries. Well functioning

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

2.2.3 Keynesian Theory II

Keynes (1936) later supported an alternative structure that included direct government

control of investment. Financial deepening occurs due to an expansion in government

expenditure. An increase in government expenditure increases aggregate demand and

income, thereby raising demand for money. This disequilibrium is resolved by reducing

private investments resulting from higher interest rates. Since higher interest rates lower

private investment, an increase in government expenditure promotes investments and

reduces private investment concurrently (Dornbusch and Fischer 1978).It is necessary to

design government policies that are attentive to the various imperfections and

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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.

2.3 Review of Empirical Studies

Greenwood and Jovanovic (1990) developed a model that predicted a nonlinear

relationship between financial development, income inequality, and economic

development. At all the stages of economic development, financial development improved

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 reduces income inequality there is a negative relationship between

financial development and the growth rate of the Gini coefficient, which holds when

controlling for real per capita GDP growth

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

development. They found however, considerable evidence of bi-directionality and some

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

probability that an individual starts a business, increases industrial competition, and

promotes growth of firms. And these results are stronger for smaller firms which cannot

easily raise funds outside of the local area

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.

19
In their results they suggested that in addition to improving growth, financial development

also reduces inequality.

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

payment services. They found that substantial cross-country variation in barriers to

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

infrastructure were the most robust predictors of barriers.

Thorsten, Demirguc-Kunt and Peria (2005) carried out research on various indicators of

banking sector penetration across 99 countries, based on a survey of bank regulatory

authorities, showed that greater outreach or penetration is correlated with standard

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

development disproportionately raised incomes of the poorest quartile, both by directly

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

poverty reduction could be attributed to cross-country variation in financial development

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-

time and cross-municipality variation in the opening of Banco Azteca in Mexico to

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

finance to low-income individuals can have a positive effect on economic activity.

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

households. These results were based on an ethnographic study conducted in Kibera, a

slum in Kenya, in 2007.

Beck, Demirguc-Kunt and Peria (2010) collected and analyzed information from 209

banks in 62 countries and used it to develop indicators of barriers to banking services

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

effectiveness of creditor rights, contract enforcement mechanisms, and credit information

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

estimates of the negative impact of access barriers on household investment

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,

access-related barriers, especially documentation related barriers, have gained in

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

actions of financial service providers

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 related factors, income, inequality, literacy, urbanization and physical

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

ownership pattern did seem to matter.

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

informal savings mechanisms and increases the probability of being banked

Nyasetia (2012) set out to establish the implications of financial deepening on savings and

investments in Kenya. He adopted a causal research design in investigating the relationship

between financial deepening and savings and investments in Kenya. He used secondary

data on financial deepening indicators, savings and investments from 2006-2011. He

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

development in Kenya. He adopted a Quantitative comparative design. The target

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

growth by increasing economic efficiency, investment and growth.

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

dominant service provided.

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

income inequality and poverty levels (Levine,2005)

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

their transaction costs.

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

and building societies

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

high-frequency and low-volume emphasizing the importance of easily accessible services

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

collateral, which increases the risk of service provision

2.3.2 Mobile Financial Services in Kenya

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

and use of banking services (Gu, Lee & Suh, 2009)

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-

Connect (Central Bank of Kenya, 2010).

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

(Williams & Torma, 2007, p 18).

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

indication of geographic access or lack of physical barriers to access (Beck, Demirg-

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

excluded from the financial mainstream. (Ivatury,2006).

2.3.3 Determinants of Financial Inclusion

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

of users-individuals, households or firms. Some of the commonly used indicators for

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

provided by banks or by other formal financial service providers

It is desirable to examine the determinants of financial inclusion so as to undertake

appropriate policy measures for bringing about a more inclusive society in terms of the

access to financial services. Several socio-economic factors simultaneously determine the

potentiality of borrowers of formal financial institutions. Broadly, the process of financial

inclusion is conditioned upon a numbers of factors: some are social, some are economic,

some are demographic and some are institutional.

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

asymmetry in financial services acts as an obstacle to the process of financial inclusion.

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

contributes towards financial inclusion.

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

significant explorers/predictors of the financial inclusion

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

level of financial inclusion. Further, physical infrastructure for connectivity and

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

associated with financial inclusion.

2.4 Summary of Literature Review

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

efficiently, thereby smoothing consumption and protecting against economic shocks.

(Collins, Murdoch, Rutherford & Ruthven, 2009)

Financial inclusion is of great importance for economic development of a country.

However the arguments for financial inclusion and it relationship to economic

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

relationship of financial inclusion and economic development in Kenya

32
CHAPTER THREE:

RESEARCH METHODOLOGY

3.1 Introduction

Kothari (2004) defines research as an original contribution to the existing stock of

knowledge making for its development. The systematic approach concerning

generalizations and formulation of a theory is also research. As such the term research

refers to the systematic method consisting of enunciating the problem, formulating a

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

some theoretical formulation

3.2 Research Design

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

describes characteristics of a population or phenomenon it portrays an accurate profile of

persons, events or situations (Shields, 2013)

33
Meta-analysis is a statistical technique to quantitatively synthesize the empirical evidence

of a field of research. It refers to methods focused on contrasting and combining results

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

development in Kenya. Meta-analysis has become an increasingly accepted research tool in

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.

3.3 Data Collection

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

expensive and time consuming so the use of secondary data is important.

34
3.4 Data Analysis

Secondary data from various developmental and financial annual reports will be reviewed

for completeness and consistency in order before statistical analysis. According to

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.

This study will adopt a multiple regression model

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

Human Development Index (HDI) developed by United nations development program

encompassing various aspects of development.

35
X= Independent variable (Financial inclusion) whereby as measured by the various

indicators of financial inclusion ie measures of penetration, access and usage

X1= Number of bank accounts (per 1000 adult population),

X2= Number of bank branches (per 100,000 people),

X3= Amount of bank credit to amount of bank deposit as a percentage

0= Constant term

0= Gradient/Slope of the regression measuring the amount of the change in Y associated

with a unit change in X

= Error term within a confidence interval of 5%

3.4.1 Test of significance

2 tailed T-test will be performed to test the significance of the coefficients on the

hypothesis

H0 = There is no relationship between Financial inclusion and Economic development

indicators in Kenya

Ha = There is a relationship between Financial inclusion and Economic development

indicators in Kenya

36
CHAPTER FOUR

DATA ANALYSIS, RESULTS AND DISCUSSION

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

statistical test of significance

4.2 Descriptive Statistics

4.2.1 Human Development Index

The Human Development Index (HDI) is a composite measure of health, education and

income developed in 1990 by economists Mahbub ul Haq and Amartya Sen. It is an

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

yearly as an independent report commissioned by the United Nations Development

Programme. It is used to distinguish whether a country is developed, developing or

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

reports for the period 2005 to 2011

37
.52

.51

.50

.49

.48

.47

.46
2005 2006 2007 2008 2009 2010 2011 . . .

Years

4.2 a: A graph showing the Human development index trend of Kenya

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

human developmental index

.8

.7

.6

.5 Kenya

Low HDI

.4

Sub saharan Af rica

.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

ATMS 100,000 adult people.

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

version of the IMFs International Financial Statistics.

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

4.4 Correlation Analysis

Correlation is a concept for investigating the relationship between two quantatiave

continuous variables. Correlation coefficient measures the strength of the association

between the two variables

The study sought to test the relationship between financial inclusion and economic

development using correlation analysis presented in the table below

41
4.4.1 Pearson Correlations

4.4a Pearson correlation of financial inclusion and HDI

Human Number Number of Amount of


Developmen of bank bank bank credit
Variables t index accounts branches and deposits
Human Pearson Correlation
1 .952(**) .985(**) .461
Development index
Sig. (2-tailed) . .001 .000 .298
N 7 7 7 7
Number of bank Pearson Correlation
.952(**) 1 .950(**) .615
accounts
Sig. (2-tailed) .001 . .001 .141
N 7 7 7 7
Number of bank Pearson Correlation
.985(**) .950(**) 1 .551
branches
Sig. (2-tailed) .000 .001 . .199
N 7 7 7 7
Bank credit to bank Pearson Correlation
.461 .615 .551 1
deposits (%)
Sig. (2-tailed) .298 .141 .199 .
N 7 7 7 7
** Correlation is significant at the 0.01 level (2-tailed).

The Pearson correlation matrix highlights that there is a significant correlation between the

dependent variables (HDI) and independent variable Number of Bank branches and

Number of bank accounts at 0.985 and 0.952 respectively

42
4.4.2 Partial Correlation

4.4a Partial correlation FI and HDI

Partial correlation

Variables (Pearsons r)

(Constant)

Number of bank accounts .669

Number of bank branches .918

Amount of bank credit to deposits (%) -.771

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

Number of bank accounts.

4.5 Regression Analysis

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

analyze this relationship

43
4.5.1 Regression Model

A multivariate regression model was used to determine the relative importance of each of

the three variables in respect to HDI

The Multiple regression model for the study was

Y=f(x) (1)

Yi = 0 + X1 + X2 + X3 + + Xn + (2)

Where

Y= Dependent variable is (Development)

X= Independent variable (Financial inclusion) whereby as measured by the various

indicators of financial inclusion ie measures of penetration, access and usage

X1= Number of bank accounts (per 1000 adult population),

X2= Number of bank branches (per 100,000 people),

X3= Amount of bank credit to amount of bank deposit as a percentage

0= Constant term

0= Gradient/Slope of the regression measuring the amount of the change in Y associated

with a unit change in X

44
= Error term within a confidence interval of 5%

4.5a: Regression analysis (Model summary)

Unstandardized Correlation Collinearity


Coefficients t Sig. s Statistics
B Std. Error Partial Tolerance VIF
(Constant) .500 .030 16.696 .000
Number of bank
2.478E-05 .000 1.560 .217 .669 .086 11.607
accounts
Number of bank
.012 .003 4.022 .028 .918 .097 10.361
branches
Bank credit to
bank deposits -.001 .000 -2.098 .127 -.771 .610 1.639
(%)
Dependent Variable: Human Development index

From table 3 we obtain the values for regression equation which can be presented as

follows:

Y= 0.5+ 0.00002478X1+ 0.012X2- 0.001X3+ 0=0.5 1= 0.00002478 2=

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

Regression Standardized Predicted Value

4.5 b: A scatter plot showing the relationship between the dependent and standardized

independent variables

4.5.2 Test of Coefficients Statistical Significance (T-test)

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.

4.5.3 The Test of Prediction Ability of Independent Variables (R square)

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-

square is shown in the table below:

4.5 c: R square measure

Adjusted R Std. Error of the

R R Square Square Estimate

.995(a) .989 .979 .002329

a Predictors: (Constant), Amount of bank credit to bank deposits(%), Number of bank

branches, Number of bank accounts

b Dependent Variable: Human Development index

According to table 4 the R square which is 0.989 depicts that the independent variables

explains great proportion of the variance of independent variable. Therefore the

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

the suitability of the independent variables in predicting the dependent variable

4.5.4 Analysis of Variance (ANOVA)

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

reliability of the independent variables in predicting the dependent variable is further

shown by the Analysis of Variance (ANOVA test) as illustrated in the table below:

4.5 d: Regression Analysis (ANOVA)

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,

Number of bank accounts

b Dependent Variable: Human Development index

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

the dependent variable.


48
4.5.5 The Test for Collinearity

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

regression coefficient is increased compared to if all predictors were uncorrelated. On the

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

indicator of financial inclusion.

49
CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

This chapter summarizes the findings, draws conclusions relevant to the research and

makes recommendations

5.2 Summary of Findings

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

independent variable reliably predicts the dependent variable. Ie there is a relationship

between financial inclusion and economic development indicators in Kenya

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

doesnt eliminate any of the three independent variables.

5.3 Conclusion

Financial inclusion is an important aspect of development. Access to finance enhances the

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

increase economic development in Kenya. Regression and correlation analysis established

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

indicators we can increase economic development in Kenya

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

government focus should also be on the financial inclusion policies as a means of

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 relevance of financial inclusion in economic development cannot be over emphasized.

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

policies to encourage financial inclusion.

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

anybody who approaches them

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

measures and policies to be adopted to encourage financial inclusion

Innovative technological financial inclusion has proved to be the most effective measure of

financial inclusion initiative in Kenya, these initiatives should be encouraged and

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

accounts have increased the population of people with ban accounts.

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

period and country studied is unclear.

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

conclusions arrived at.

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.

The definition of financial indicators has traditionally been shaped by previously

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.

5.6 Suggestions of Further Research

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

to translate financial inclusion into operational terms.

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

relationship to economic development with an aim of formulating more effective financial

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

cooperatives were viewed as effective measures to enhance financial inclusion as

advocated by their founders, their effectiveness needs to researched on as the policy

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

benefits of the proven successful measures in increasing financial inclusion in their

individual countries

57
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64
APPENDIX I

HUMAN DEVELOPMENT INDEX - KENYA


Low human Sub-Saharan
Year Kenya development Africa World
2012 0.519 0.466 0.475 0.694
2011 0.515 0.464 0.472 0.692
2010 0.511 0.461 0.468 0.690
2009 0.505 0.455 0.463 0.685
2008 0.495 0.448 0.456 0.683
2007 0.491 0.442 0.449 0.678
2006 0.480 0.432 0.440 0.672
2005 0.472 0.424 0.432 0.666
2000 0.447 0.385 0.405 0.639
1995 n.a. n.a. 0.397 0.618
1990 0.463 0.350 0.387 0.600
1985 n.a. n.a. 0.378 0.578
1980 0.424 0.315 0.366 0.561
.

65
APPENDIX II

Variable Indicator name Short definition Long definition Coverage Source


Bank accounts Number of depositors For each country 2001- International Monetary
X1 per 1,000 adults with commercial banks calculated as: (reported 2011 Fund, Financial Access
per 1,000 adults. The data number of Survey
is from commercial banks- depositors)*1,000/adult
bank survey. population in the
(International Monetary reporting country.
Fund, Financial Access (International Monetary
Survey) Fund, Financial Access
Survey)
Bank branches Number of commercial For each country 2001- International Monetary
X2 per 100,000
adults
bank branches per
100,000 adults. The data
calculated as:(number of
institutions + number of
2011 Fund, Financial Access
Survey
is from commercial banks- branches)*100,000/adult
bank survey.(International population in the
Monetary Fund, Financial reporting country.
Access Survey) (International Monetary
Fund, Financial Access
Survey)

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

Region :Sub-Saharan Africa Income Group: Low-income economies

Country Year GFDD.AI.01 GFDD.AI.02 GFDD.SI.04


Burundi 2005 14.43 1.52 83.88
Burundi 2006 15.71 1.63 77.74
Burundi 2007 16.30 1.73 76.10
Burundi 2008 16.67 1.76 66.85
Burundi 2009 19.17 1.91 74.28
Burundi 2010 26.75 2.13 79.17
Burundi 2011 31.32 2.40 100.71
Central African Republic 2005 7.77 0.30 125.67
Central African Republic 2006 8.26 0.29 121.89
Central African Republic 2007 17.95 0.49 92.29
Central African Republic 2008 24.25 0.52 96.37
Central African Republic 2009 30.81 0.74 77.91
Central African Republic 2010 43.71 0.84 102.62
Central African Republic 2011 46.67 0.88 101.68
Chad 2005 5.89 0.38 94.21
Chad 2006 7.07 0.37 53.15
Chad 2007 8.11 0.37 62.40
Chad 2008 9.43 0.50 76.62
Chad 2009 15.42 0.57 85.36
Chad 2010 18.95 0.64 80.21
Chad 2011 21.26 0.72 82.50
Comoros 2005 58.55 0.53 58.47
Comoros 2006 50.03 0.52 47.78
Comoros 2007 43.79 1.02 50.76
Comoros 2008 47.18 1.00 52.58
Comoros 2009 60.27 1.22 65.08
Comoros 2010 74.25 1.42 69.74
Comoros 2011 69.18
Congo, Dem. Rep. 2005 0.77 0.45 44.51
Congo, Dem. Rep. 2006 1.50 0.44 48.79
Congo, Dem. Rep. 2007 2.86 0.47 46.56
Congo, Dem. Rep. 2008 4.76 0.46 67.14
Congo, Dem. Rep. 2009 11.66 0.48 58.95
Congo, Dem. Rep. 2010 11.79 0.59 53.05
Congo, Dem. Rep. 2011 16.19 0.66 50.78
Eritrea 2005 24.30
Eritrea 2006 24.00
Eritrea 2007 18.9

67
Country Year GFDD.AI.01 GFDD.AI.02 GFDD.SI.04

Eritrea 2008 18.46


Eritrea 2009 16.53
Eritrea 2010 14.80
Eritrea 2011 15.20
Ethiopia 2005 0.91 54.51
Ethiopia 2006 65.98 0.94 60.94
Ethiopia 2007 74.39 1.08 59.28
Ethiopia 2008 77.46 1.19 65.62
Ethiopia 2009 90.27 1.32
Ethiopia 2010 102.84 1.37
Ethiopia 2011 114.76 1.97
Gambia, The 2005 4.23 35.76
Gambia, The 2006 4.92 37.78
Gambia, The 2007 5.79 38.93
Gambia, The 2008 6.94 39.16
Gambia, The 2009 7.25 37.65
Gambia, The 2010 8.88 37.36
Gambia, The 2011 8.88 36.90
Guinea 2005 39.62
Guinea 2006 30.26
Guinea 2007 37.46
Guinea 2008 1.03 29.16
Guinea 2009 1.19 26.92
Guinea 2010 1.30 24.28
Guinea 2011 1.46 38.49
Kenya 2005 115.34 2.61 76.41
Kenya 2006 139.93 2.71 74.69
Kenya 2007 217.25 3.54 72.60
Kenya 2008 287.98 4.12 78.21
Kenya 2009 370.79 4.43 75.79
Kenya 2010 549.32 4.74 75.27
Kenya 2011 651.51 5.17 82.62
Liberia 2005 46.37
Liberia 2006 0.85 49.59
Liberia 2007 1.12 52.56
Liberia 2008 1.64 50.29
Liberia 2009 2.91 51.17
Liberia 2010 3.59 51.70
Liberia 2011 3.81 51.65
Madagascar 2005 17.49 1.18 69.61
Madagascar 2006 19.18 1.25 64.27
Madagascar 2007 21.58 1.35 61.95

68
Country Year
GFDD.AI.01 GFDD.AI.02 GFDD.SI.04

Madagascar 2009 32.50 1.48 66.66


Madagascar 2010 42.71 1.55 68.71
Madagascar 2011 44.30 1.43 62.70
Malawi 2005 41.62
Malawi 2006 58.55
Malawi 2007 52.07
Malawi 2008 59.58
Malawi 2009 64.86
Malawi 2010 72.04
Malawi 2011 191.46 1.09 64.15
Mali 2005 97.24
Mali 2006 101.70
Mali 2007 93.02
Mali 2008 98.61
Mali 2009 88.18
Mali 2010 86.52
Mali 2011 98.12
Mozambique 2005 1.99 49.95
Mozambique 2006 2.03 53.84
Mozambique 2007 2.36 50.05
Mozambique 2008 2.50 62.06
Mozambique 2009 2.87 70.18
Mozambique 2010 3.30 72.34
Mozambique 2011 3.63 70.22
Niger 2005 88.11
Niger 2006 103.91
Niger 2007 86.93
Niger 2008 105.61
Niger 2009 109.94
Niger 2010 102.63
Niger 2011 119.36
Rwanda 2005 8.59 0.75 77.39
Rwanda 2006 10.30 0.72
Rwanda 2007 23.34 1.05
Rwanda 2008 185.08 4.49
Rwanda 2009 212.61 4.81
Rwanda 2010 262.10 4.81
Rwanda 2011 171.46 5.50
Sierra Leone 2005 1.29 32.61
Sierra Leone 2006 60.65 1.45 32.02
Sierra Leone 2007 63.23 1.73 35.21

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Country Year
GFDD.AI.01 GFDD.AI.02 GFDD.SI.04

Sierra Leone 2010 183.52 2.81 47.76


Sierra Leone 2011 153.54 2.96 46.97
Tanzania 2005 1.21 45.99
Tanzania 2006 1.26 52.79
Tanzania 2007 1.52 59.71
Tanzania 2008 1.69 64.82
Tanzania 2009 1.82 58.77
Tanzania 2010 1.84 56.80
Tanzania 2011 1.95 61.50
Togo 2005 59.26 1.58 78.43
Togo 2006 64.88 1.94 69.56
Togo 2007 73.83 2.45 79.17
Togo 2008 190.39 4.21 61.30
Togo 2009 203.62 4.18 62.94
Togo 2010 68.28
Togo 2011 81.02
Uganda 2005 96.33 1.15 56.87
Uganda 2006 110.86 1.16 66.25
Uganda 2007 108.10 1.35 62.92
Uganda 2008 149.82 1.99 74.53
Uganda 2009 167.86 2.31 72.75
Uganda 2010 186.15 2.41 71.51
Uganda 2011 2.43 83.81

70