Financial Inclusion and Welfare in Post-Apartheid South Africa
Files
Date
2017-08-03
Authors
Nanziri, Elizabeth Lwanga
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research consortium
Abstract
The socioeconomic transformation process in post-apartheid South Africa has generated
research on a wide range of economic issues, in particular, inequality and poverty.
Surprisingly, there is limited empirical analysis on financial inclusion. This paper fills this
void in the literature by answering two questions: (i) Does financial inclusion improve
welfare? (ii) Is the benefit from using formal financial services greater than from using
non-formal financial services? The paper uses a unique cross-sectional dataset on use of
financial products over the period 2006–2011. Two measures of welfare are constructed –
a well-being index and a wealth index. The sample is divided into users of formal financial
services and users of non-formal financial services. The focus is on the differences in
the welfare of the two groups. This difference in welfare is then decomposed through
the Recentered Influence Function (RIF) approach. Finally, an OLS regression of the
recentered welfare is estimated across quantiles for each group. Results show that: (i)
overall, using formal financial products is associated with higher welfare; (ii) regardless
of the measure of welfare used, the results are qualitatively similar: the wealth index picks
up differences in the top quantiles, while the well-being index picks the differences in
the lower quantiles; (iii) welfare disparities are accounted for by the unexplained factors
related to income and education; and (iv) there are welfare gains from using non-formal
credit and insurance products for individuals in the lower quantiles. The results suggest
that the pursuit of financial inclusion should be complemented with policies that improve
education and incomes, especially for the marginalised.
Description
Keywords
Financial Inclusion; , Recentered Influence Function; , South Africa , ; Welfare