Correction to: Financial Inclusion and Household Welfare: An Entropy-Based Consumption Diversifcation Approach

This study looked at the impact of financial inclusion on households’ welfare in Kenya based on both the single (transactionary, credit, savings and investment, insurance and pension) and composite measures (portfolio usage) of financial inclusion. The study used repeated household Financial Access datasets for the period 2009 to 2016 to run five autoregressive distribution models to capture the welfare impact. Estimation results established that the impact of financial inclusion on household welfare varies by product with the credit channel taking the lions share. A shift from non-usage (control) to usage (treatment) of financial services (zero one change) among the sampled respondents raises household welfare by 126, 110 and 49 percent with respect to credit, transactionary and insurance products respectively ceteris paribus. Conversely, a counterfactual assessment revealed a 56, 52 and 33 percent drop in welfare from the non-usage of credit, transactionary and insurance products respectively. Portfolio usage of financial services as captured by the index of financial inclusion raises household welfare by 347 percent other factors held constant. Given the positive welfare impact of financial inclusion, the study recommends increase in the range of formal financial products to increase competition in financial markets lowering transaction costs for welfare improvement. Policies targeting welfare improvement through finance should also be aligned to specific financial inclusion transmission channels to be more effective as opposed to blanket proposals.

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Formal financial penetration and households’ welfare in Pakistan

International Journal of Financial Engineering ◽

10.1142/s2424786320500413 ◽

2020 ◽

Vol 07 (04) ◽

pp. 2050041

Author(s):

Mariam Naz ◽

Syed Faizan Iftikhar ◽

Ambreen Fatima

Keyword(s):

Economic Status ◽

Well Being ◽

Vital Role ◽

Financial Inclusion ◽

Household Welfare ◽

Financial Transfers ◽

Access To Credit ◽

Household Level ◽

Level Data ◽

The Family

The studies in recent era exhibit that the financial inclusion has become a scorching issue in playing its vital role while improving the lives of vulnerable and underprivileged households’ well-being. But, the microdata impact of financial inclusion on household welfare is not being analyzed to substantial extent in Pakistan yet. Therefore, it is imperative to examine the effects of financial inclusiveness on the living standards of individuals to persuade them toward formal financial inclusion. Thus, the study attempts to explore the link between an expanded formal financial system and poverty alleviation through smooth consumption levels, providing access to credit and investment facilities to the individuals. For this purpose, the household level data of Household Integrated Economic Survey (HIES) for the time-period of 2013–2014 to evaluate the microlevel effect of formal financial inclusion, realizing solitarily for the remittance receiving households have been used. The well-being of households receiving formal financial inflows got highly affected by facilitating the remittance receivers through instant, reliable and frequent transfer of funds. Therefore, the main objective of the study is to investigate the effect of formal financial transfers on the socio-economic status of remittance receiving and nonreceiving individuals. The outcomes of the study suggest that the household welfare is greatly influenced by the formal financial inclusiveness along with other variables such as annual income, education level of the family, number of earning members, loans borrowed by the family, land and building ownership, and the head employed are found to be positively and significantly determining the household’s welfare.

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