Financial Access and Exclusion in Kenya and Uganda

This paper uses data from Financial Access Surveys carried out in 2006 in Kenya and Uganda to investigate socio-economic, demographic and geographical factors causing access to and exclusion from formal, semi-formal and informal financial services.Study findings demonstrate low use of formal services, extensive use of informal services, and extent of exclusion from all services in Kenya and Uganda. The analysis presents patterns of inclusion and exclusion dependent on the key factors of employment, gender, age, education and geography. Study findings suggest that:

• Institutional theories of financial sector development and policies for effective outreach need to address roles of underlying social institutions and informal finance;
• Socio-economic characteristics determine access and present underlying barriers to entry for users;
• Policy needs to focus attention on factors other than just lowering transaction costs;
• Policy needs to focus on informal sector provision of financial services.

While policy must primarily focus on the role of formal banks in downscaling to reach poorer clients, the paper also raises the question of whether and how policy can incorporate the semi-formal and informal sectors into their strategies of widening access to finance for poorer people.