Effect of inclusive financial inclusion on economic growth in Kenya

Abstract

Kenya has made significant strides in financial inclusion, yet disparities remain, particularly among rural and underprivileged communities, with an estimated 13.5 million people still excluded from the formal financial system as of 2018. A persistent gender gap also exists, driven by disparities in digital financial inclusion, where men are more likely to own mobile phones and access formal digital credit. The primary purpose of this proposed study is to investigate how financial inclusion can contribute to economic growth, considering the specific barriers faced by women in accessing financial services. That study specifically determined the effect of financial inclusion, women financial inclusion, men financial, women mobile banking on economic growth in Kenya. The study, guided by the Endogenous Growth and New Growth Theories, employed a longitudinal research design to analyze time series data from 2019 to 2023, focusing on men and women in Kenya accessing formal financial services. Secondary data was sourced from institutions such as the World Bank (2024), the Central Bank of Kenya (CBK, 2021), the Kenya National Bureau of Statistics (KNBS, 2024), and the FinAccess Household Survey. Using descriptive statistics and Vector Autoregression (VAR) analysis, the study found that financial inclusion significantly enhances GDP growth (β = 19.087, p < 0.001), with positive contributions from women’s financial inclusion (β = 8.050, p = 0.003) and men’s financial inclusion (β = 3.173, p = 0.041). Mobile banking usage also positively impacted GDP growth, with women’s usage (β = 4.204, p = 0.011) and men’s usage (β = 7.331, p = 0.003), though men’s impact was more pronounced. The study concludes that financial inclusion is vital for economic growth, particularly through women’s economic participation, and recommends targeted interventions to enhance financial access for women, address barriers to mobile banking, invest in human capital, and optimize mobile banking platforms to support higher-value transactions and gender-sensitive economic policies.