Financial Inclusion and Economic Growth in Kenya.

Abstract

Kenya has implemented numerous innovative finance solutions that are aimed at transforming its financial, economic and social landscape. These measures are taken towards achieving an inclusive economy and eradicating poverty. Kenya has witnessed substantial efforts to promote financial inclusion, yet there remains a lack of comprehensive empirical evidence on its actual effect on economic growth. The purpose of this study was to examine financial inclusion and economic growth in Kenya. This research was guided by three objectives; to establish the trends and patterns of financial inclusion in Kenya; to analyze economic growth in Kenya; to determine the effect of financial inclusion on economic growth in Kenya. The study population of the study was from the year 1964 to 2023 with the study sample being annual data from 2013 to 2023 with an emphasis on accessibility of financial services, usage of financial services, affordability of financial services and economic growth. Secondary data was from the SACCO deposits, bank deposits and facilities, economic growth among others were obtained from credible institutions like the Central Bank of Kenya, Kenya National Bureau of Statistics, Sacco Societies Regulatory Authority and the World Bank. The study was guided by three theories and one model namely, the financial intermediation theory, finance-led growth theory, the institutional theory of financial institution and the Solow’s growth model. A descriptive research design and correlation research design were used in understanding the effect of financial inclusion on economic growth employed. Data analysis involved descriptive statistics, trend analysis regression analysis and correlation analysis. The findings showed that even though financial inclusion affected economic growth, the effect was not significant. The number of Micro finance banks and the bank lending rates exhibited a positive correlation to the economic growth rate. The study recommends that further studies be carried out on how each specific dimension of economic growth affects economic growth. Further, studies can be conducted to ascertain how financial inclusion affects economic growth in specific counties.