The Effect of Social Cash Transfers on Financial Inclusion in Kenya: a Study of Kenya Social Protection Interventions

Abstract

Building inclusive financial systems is a key strategy to drive economic growth especially in developing countries. Kenya has commendably increased the number of adults accessing financial services through the use of financial innovations. The use of Social Cash Transfers Programmes (SCTP) is an emerging intervention tool that addresses various needs of the poor. Studies in other counties have revealed that SCTPs must make a deliberate effort to design their interventions in a manner that promote financial inclusion of beneficiaries so as to successfully achieve this objective. Hence the purpose of this study was to establish the effects of social cash transfers (SCT) on financial inclusion in Kenya. The study was inspired by the need to promote the financial inclusion of the abject poor. The research design adopted a descriptive survey study in which data was gathered from 57 programme beneficiaries. The sampling frame included all 340,700 beneficiaries of all the 6 programmes under the Kenya National Social Protection Sector. Structured questionnaires guided by the Global Findex Survey indicators were used in the study. The data collected was analyzed by use of Microsoft Excel 2010 and Statistical Package for Social Sciences (SPSS) Version 21. Linear and Multiple regression analyses were used to determine the effect of SCTs on financial inclusion. The study found that SCTPs were characterised by low levels of formally banked beneficiaries and cashless transactions, few account transactions, low saving propensity. Few beneficiaries took credit from regulated financial institutions. However, significant increase in financial inclusion was registered amongst beneficiaries who were already included before joining the SCTPs as compared to those who were initially excluded. The study concluded that SCTP intervention per se was not a useful predictor of financial inclusion of the population. The addition of history of prior inclusion to the regression equation caused a large change in R2 indicating that the variable provides unique information about the dependent variable that was not available from the SCTP operation as an independent variable. It was thus concluded that SCTP operations coupled with a history of formal inclusion had a positive effect on financial inclusion. The study also found that most SCTPs (except CFA and HSNP) used limited-purpose instruments for transfers in lieu of mainstream financial accounts, which in turn discouraged financial inclusion of beneficiaries, and in some cases led to loss of benefits. Further, the potential of mobile money as an avenue of financial inclusion was ignored by all SCTPs despite the fact that beneficiaries felt they were the most convenient transfer modes for the elderly and disabled. Based on the above findings, the study recommended that SCTPs should model transfers on formal banking, including mobile money banking, and integrate financial literacy as well as financial management skill courses so as to promote awareness amongst beneficiaries. This would facilitate better use of cash transfers benefits. Beneficiaries with formal banking history could be used as role models and peer educators.