The impact of financial inclusion on (econometric study: quarterly data from 2006-2014)

Abstract

Financial inclusion consists of bringing low-income households and small businesses into the formal financial sector, protecting their assets, and helping them to manage financial risks and access credit. Financial Inclusion is emerging as a global hot topic currently. In the recent past the financial inclusion was one of the key policy priorities among developed and developing countries. The theories of development economics suggested that the financial inclusion promotes efficient allocation of economic resources which potentially reduce the cost of capital, minimizing risk through structured financing, improving opportunities and income distribution. Indeed, Rwanda has a lot to share and a lot to learn from sister countries‘ experiences in financial inclusion and its impact on poverty alleviation and inclusive development. Rwanda has made significant strides, doubling formal inclusion from 21% to 42%, and reducing total exclusion from 52% to 28% in five years, between 2008 and 2012. Plans for the next five-year period are to again double formal inclusion to 80% by end of 2017. Therefore, it facilitates in reducing poverty and eliminating the use of informal financing thus promotes economic growth. Although many researchers have conducted empirical studies on financial inclusion and its impact on economic growth over the years, there have not been much of empirical studies to assess the impact of financial inclusion on economic growth. This thesis tried to fill the gap through assessing the impact of financial inclusion on economic growth through empirical study in Rwanda. In my empirical model the economic grow, the dependent variable is measured by GDP per capita. The level of financial inclusion is measured by variables which assess the dimension of availability, accessibility and usage of electronic banking such as branch penetration, presence of ATMs and domestic credit. I also used government expenditure, unemployment and inflation as control variables. x The overall result confirms that the financial inclusion has greater impact on economic development especially through availability of financial product and services and the usage of electronic banking.