Financial Inclusion and Sustainable Rural Development

Despite the growing recognition of financial inclusion's importance in socioeconomic development, the link between financial inclusion and sustainable rural development remains underexplored. This chapter provides a thematic presentation of the potential role of financial inclusion in driving sustainable development in rural areas across the globe. To do this, we undertook a comprehensive search of the academic databases using effectively crafted keywords. As an inclusion criterion, we only considered peer-reviewed journal articles, reports from international research institutions, and policy documents/briefs published within the last 10 years (2014–2024). We examined both quantitative and qualitative studies that have focused on the linkages between financial inclusion and some specific sustainable development goals (SDGs) from the rural perspective. A few articles without a rural focus were also used to draw latent inferences. Our findings revealed that financial inclusion in its unidimensional or multidimensional form is capable of contributing to (i) reductions in poverty in diverse forms, food insecurity, and inequality; and (ii) enhancements in good health and wellbeing, quality education, gender equality and women’s empowerment, clean water and sanitation, affordable and clean energy, decent work and economic growth, innovation, infrastructure, and social services, responsible consumption and agricultural production, and climate change adaptation.

Considering the high rate of credit constraints and the worsening levels of food insecurity, especially in rural communities worldwide, an assessment of the role of borrower discouragement in driving rural household food insecurity cannot be overemphasized. We empirically examine this relationship in rural Ghana, and further explore the potential mediating role of financial inclusion. We use comprehensive rural household data extracted from round seven of the Ghana Living Standards Survey. Several quasi-experimental econometric approaches are employed to resolve potential endogeneity problems. We find that rural household heads who are discouraged from borrowing end up being financially excluded and hence have little financial resources to escape food insecurity. We also find that the discouraged borrower syndrome significantly affects food insecurity in male-headed rural households but not in those headed by women.

This chapter applies an integrative literature review to discuss the effects of financial inclusion on the resilience of rural dwellers. The effects are examined in the context of the influence of household asset ownership, gender differentials, educational inequalities, technology, inordinately low incomes, and savings culture. The work synthesises the areas above into the following key themes:

We argue that proactive state intervention is required to amplify the effects of financial inclusion on resilience among rural populations.

Considering the worsening prevalence of anxiety and depression globally and the many forms of socioeconomic deprivations faced by rural folks, it has become necessary to explore the financial inclusion–mental distress nexus from a rural perspective. This chapter contributes to the body of knowledge by examining the effect of financial inclusion on mental distress in rural South Africa using data extracted from five waves of the National Income Dynamics Survey (NIDS). We employ a multidimensional index of financial inclusion and measure mental distress using the 10-item Centre for Epidemiological Studies Depression Scale (CES-D-10). Endogeneity is addressed using the Lewbel instrumental variable method. Our findings show that financial inclusion is associated with a decrease in mental distress in rural South Africa, with rural men experiencing greater reductions in mental distress from being financially included compared to women. The findings remain consistent when analysed using different quasi-experimental estimation methods and alternative measures of financial inclusion. The findings further reveal that increased incomes and enhanced energy transition among rural households are reliable pathways via which financial inclusion reduces mental distress in rural areas of South Africa.

This study investigates the relationship between financial inclusion and energy poverty reduction, proxied with rural access to electricity and, clean fuels and technologies for cooking, utilising data from 14 Latin American countries from 2004–2020. Evidence from dynamic ordinary least squares, fully modified ordinary least squares, and canonical correlation regression techniques documented that financial inclusion significantly decreases rural energy poverty in Latin America. However, the impact of financial inclusion on rural energy poverty reduction differs considerably among individual Latin American countries. We recommend that policies promoting financial inclusion would reduce rural energy poverty.

Despite global efforts to propel clean fuels, rural households in most developing countries rely heavily on traditional solid fuels, perpetuating energy poverty and hindering sustainable rural development. Using two waves of longitudinal data from the Tanzania National Panel Survey spanning between 2014 and 2022, we examine the effects of financial inclusion on energy poverty in rural Tanzania. We employ multidimensional constructs of financial inclusion and energy poverty. We benchmark our results using a panel fixed effect estimator and address the potential endogeneity of financial inclusion in a standard Two-Stage Least-Squares estimation. Our main finding indicates that financial inclusion decreases energy poverty. This finding is consistent across different quasi-experimental approaches and alternative financial inclusion and energy poverty conceptualisation. The effect of financial inclusion on energy poverty is more substantial for rural mainland residents than rural Zanzibar. Relatively, access to credit has the biggest effect in reducing energy poverty compared to the other dimensions of financial inclusion. Finally, we find the emergence of non-farm businesses as an important channel through which financial inclusion operates to reduce energy poverty. We recommend policies that promote entrepreneurship in rural communities with high energy poverty to consolidate the gains of financial inclusion for sustainable rural development.

Despite the growth of digital financial services (DFS) in Ghana, researchers have identified its uneven availability and usage; particularly among women. Against this background, experts have recommended the need for innovative digital financial solutions that have the capacity to address the uneven distribution and utilization of digital financial services. However, the key policy questions are: what service innovations will women require to improve their adoption rate? Second, what service attributes hinder a more active and rational use of digital financial services among women? The study concentrated on the mobile money financial market and applied the discrete choice experiment method to examine the factors that define preferences and willingness to pay for service innovations among women in Ghana. The study focused on service innovations in four product portfolios; i.e. wealth management services, digital insurance, digital payments, and digital savings. A total of 1300 respondents were sampled across 8 randomly selected districts in Ghana. The mixed logit estimation results suggest that women require specialized financial instruments and have a strong preference for innovations in digital savings and insurance product portfolios to meet their needs. The findings also suggested that product attributes that reflect an integration of traditional financial practices in the digital financial space will drive up the adoption rate among women in Ghana. Consequently, the study advises that successful service innovations or product advancements should strike a harmonious balance between conventional and digital financial practices to achieve substantial success.

Discrimination and heightened vulnerability as a result of unequal gender roles permeate the most fundamental aspects of freedom, consequently influencing the degree of financial inclusion women can attain. As a result, women and girls continue to have lower levels of economic power, asset ownership, education, and income, with detrimental implications for the welfare outcomes of women. Women’s financial inclusion has proven to be a driver to achieving many of the sustainable development goals 1–5, 8, 9, 10, and 16. Women’s access to and use of appropriate financial services such as payments, savings, credit, and insurance holds a strong promise to facilitate women’s socioeconomic empowerment. However, the empirical literature has failed to bear this out, as existing attempts remain few and inconclusive, calling for a within-country enquiry. This chapter examines how access and usage of financial services proxied by mobile money affects women empowerment for female farmers in the shea value chain in Northern Ghana. Results from the instrumental variable Probit estimation technique show that access to financial services and usage of financial services enhance women’s empowerment in general, and also four domains of the Women’s Empowerment in Agriculture Index. Recommendations are appropriately supplied for policy and practice.

Despite financial inclusion’s ability to enhance socioeconomic well-being, financial inclusion remains considerably low in sub-Saharan Africa (SSA). Considering financially excluded individuals/households in SSA, the majority are from rural settings and are mostly peasant farmers or smallholders. Literature on smallholders seldom focuses on their financial inclusion status and how it is influenced by digital literacy. This chapter explores the nature of digital literacy among smallholders and how it affects their financial inclusion prospects in Cote d’Ivoire and Nigeria. The study used data extracted from the Smallholder Household Survey for 2016 for each country and applied binary probit and IV-probit models to analyse the data. The findings indicate that digital literacy significantly enhances financial inclusion among smallholders in both countries, with consistent gender differences in favour of male farmers. Also, socioeconomic characteristics such as gender, investment, residence, education, age, marital status, etc. were identified as significant drivers of financial inclusion. Also, smallholders who consider farming as a business tend to be more financially included than their counterparts who do not have such a perception. Policy implications are discussed in the chapter.

Financial inclusion is considered a key driver of poverty reduction, economic development, and the achievement of several Sustainable Development Goals (SDGs). Although researchers have examined gender and geographical financial inclusion, most studies have relied on cross-sectional analyses. To address this gap, we study rural gender gaps and rural–urban women gaps in financial inclusion for 19 sub-Saharan African (SSA) countries over the 2017 and 2021 periods. We utilise the Global Findex databases, which contain the most detailed demand-side data collected at the individual level, and the Kitagawa-Oaxaca-Blinder (KOB) decomposition method to estimate the average differences in financial inclusion between groups and how they have changed over time and identify the factors contributing to these differences. The KOB decomposition has an advantage over traditional methods like ordinary least squares (OLS) in that it divides observed differences into three categories: explained components (e.g., education, labour force status, income), unexplained factors (interpreted as discrimination), and their interactions. We found the financial inclusion gap between urban and rural women over the period to be higher than the rural women and male gap. Given this, the significance of our findings is that, in addition to gender disparities, it is crucial to account for variances within the same gender, notably those between rural and urban women, when quantifying gaps and developing policies linked to financial inclusion. The endowment effect, including employment, years of schooling, and mobile phone ownership, dominates the financial inclusion gaps between gender and rural–urban women; bridging these endowments could potentially reduce gender and rural–urban disparities in financial inclusion in SSA.

Sustainable rural development is essential for achieving global sustainable development goals such as poverty reduction, food security, and environmental sustainability. Many rural areas, however, have limited access to financial institutions, restricting their ability to participate in economic development and impeding the formation of sustainable rural economies. Women, in particular, frequently face severe barriers to accessing financial services, perpetuating gender inequities in rural communities. This study investigates the relationship between financial inclusion, women's empowerment, and sustainable rural development, utilising advanced econometric techniques on a comprehensive dataset spanning 161 countries from 2004 to 2021. The baseline model results reveal a positive impact of financial inclusion and women's empowerment on the Sustainable Rural Development Index (SRDI). The interaction effect suggests a nuanced influence, with joint financial inclusion and women's empowerment slightly mitigating rural development. Subsequently, we employ 2SLS and GMM to control for endogeneity issues, ensuring the robustness of our empirical analysis. The results contribute valuable insights for policymakers, development practitioners, and financial service providers aiming to design effective strategies promoting gender equality and sustainable development in rural areas.

In this chapter, we examine the impact of financial inclusion on on-farm labour force productivity and employment using data extracted from the Ghana Socioeconomic Panel Survey. Using a multidimensional index of financial inclusion, we find that financial inclusion is associated with an increase in on-farm labour force productivity and employment among rural households. This result is robust to alternative ways of measuring on-farm labour force productivity and employment, financial inclusion cut-offs and estimation strategies. We identify household income and on-farm asset accumulation as important pathways through which financial inclusion influences on-farm labour force productivity and employment.

In this chapter, we examine the relationship between financial inclusion and self-employment in rural Ghana, acknowledging the relevance of access to employment as targets of SDG 8. Despite the evident socioeconomic divide between rural and urban areas in Ghana, we draw attention to the improving effect of financial inclusion on self-employment in the rural parts of Ghana. Data for the study was sourced from rounds six and seven of the Ghana Living Standards Survey. The application of different estimation techniques provides evidence of the relationship. In measuring financial inclusion, both unidimensional and multidimensional constructs were used particularly to examine the contribution of financial inclusion. The findings from our investigation show that the single and multidimensional measures of financial inclusion have considerable positive effects on self-employment, particularly non-agriculture self-employment. Mobile money alone was also found to influence non-agriculture self-employment positively. We also indicate that financial inclusion, together with increasing level of education, decreases agric self-employment. It suggests that the education system might not have an appreciable effect on encouraging agric self-employment even in the presence of financial inclusion.

In this work, we investigate the relationship that exists between accessing financial services (FS) and the economic performances of 234 livestock farmers in Ghana's Upper West, specifically in the Lawra district. The endogenous treatment regression (ETR) is applied for our data analysis. The study's findings show that a number of factors, including market distance, education level, use of mobile phones, membership in farm-based organizations, and proximity to the closest financial institution, affect people's ability to obtain financial services. We again observed that access to financial services’ association with the farmers’ economic performance (livestock yield, net returns, and income) is positive and significant. Generally, access to FS could increase livestock farm yields, net earnings, and income. Further, regarding the potential channel estimation, we found that healthy living and adoption of climate change adaptation strategy (CAS) are substantial pathways through which access to FS boosts livestock farm yield, net returns, and income. The study’s findings signal that access to FS policies, which have the potential to enhance livestock development through many pathways, should be prioritized by the government.

Considering the impediments in access to agricultural lands and tenure insecurity, which negatively impact food insecurity and rural poverty levels, there is a need to understand how financial inclusion can improve land ownership, tenure security, and investment decisions. This chapter explores the empirical linkages between financial inclusion, agricultural land ownership, tenure security, and investment decisions based on data from the seventh round of the Ghana Living Standard Survey. Correcting for endogeneity in financial inclusion, we find that household heads who are financially included are more likely to own land with deeds, have security of tenure over the land, and invest in livestock and agricultural equipment. The results are robust to different measures of financial inclusion. Results of the heterogeneity analysis suggest that financial inclusion is more effective in increasing land ownership and investment decisions among male- and adult-headed households. However, financially included youth-headed households are more likely to invest in agricultural equipment than adult-headed households. Policies that aim at achieving universal financial access must be vigorously pursued and sustained.

Despite the potential of integrated crop-livestock farming systems (ICLFS) in boosting productivity, thereby helping to reduce food insecurity and poverty, its adoption remains low in South Asia, including India. Nonetheless, the implementation of such systems often requires access to funding and sufficient financial resources. This chapter examines the link between financial inclusion and the adoption of ICLFS in rural India using the two waves (2015 and 2018) of the Access to Clean Cooking Energy and Electricity Survey of States (ACCESS) in India. We measure financial inclusion using a multidimensional construct that cuts across three dimensions of inclusion and captures ICLFS adoption as a binary variable. We employ a mix of econometric methods and resolve the endogeneity problem associated with financial inclusion. Our finding indicates that financial inclusion is associated with an increase in farm households’ adoption of ICLFS in rural India. Financial inclusion increases ICLFS adoption more among female-headed households. Recommendations for policy and future studies are discussed.

Mobile money (MoMo) has emerged as an important digital technology for promoting financial inclusion among resource-poor households in developing countries. However, an important research question that is yet to receive considerable attention in the literature is whether MoMo adoption could enhance food security and household resilience in developing countries. This study employs food insecurity experience scale (FIES), household dietary diversity score (HDDS), and resilience capacity index (RCI) as the outcome measures. Data collected from 472 farm households in three semi-arid regions are analyzed by employing inverse probability weighting regression adjustment (IPWRA) and treatment effects using the least absolute shrinkage and selection operator (TELASSO) method to address endogeneity issues. Our results show positive effect of MoMo adoption on HDDS, reduction of moderate food insecurity, and FIES score. While RCI did not improve, we found that MoMo adoption increases key pillars of the index such as access to basic services, assets, and social safety nets. Overall, the results demonstrate that MoMo adoption increases food security and key components of resilience. We recommend that future policies on digital economic transformation should take into account the adoption of MoMo services in order to enhance the welfare of farm households in developing countries.

Mobile money, a digital financial technology, has been viewed as a development intervention, particularly for individuals or households with limited access to formal financial services in developing countries. However, there is a paucity of evidence on whether mobile money improves access to finance among households experiencing health shocks, particularly in Ghana. This study interrogates this issue with a focus on the effect of mobile money adoption on access to credit, health insurance, and inward remittance by households that face idiosyncratic health shocks using data from the seventh round of the nationally representative Ghana Living Standards Survey. Relying on different econometric techniques, including an instrumental variables estimator, the key results show that mobile money significantly facilitates access to credit, inward remittances, and ownership of health insurance policies among households with health shocks. While there is no gender heterogeneity in the effect on inward remittances, we find that the effect on credit and insurance pertains to male-headed households. Also, there is no locational heterogeneity in the effect on inward remittance and credit, but the effect on health insurance pertains to rural households. While these heterogeneities need policy attention, the results largely imply that improving access to mobile money can help address financial constraints faced by households in the event of an idiosyncratic health shock and may also be an important means for expanding the financial coping options of such households.

The rapid growth of mobile money has prompted the implementation of regulations aimed at managing associated risks. While previous research has shown that mobile money expands rural financial inclusion and behaviors, the effects of regulations on these behaviors have received limited attention. Against this background, this study investigates the impact of mobile money regulations on the financial behaviors of rural populations in sub-Saharan Africa. Analyzing individual-level data from 24 countries in the GSMA and Global Findex database, the research constructs a regulatory index to assess the overall regulatory environment, and the relative effect of the individual dimensions. Using linear probability model and the Lewbel two-stage instrumental variables (IV) estimation as robustness check, the study reveals that mobile money regulations significantly enhance saving and credit behaviors among rural populations, particularly females and those with lower educational attainment. Furthermore, the study finds that among the different aspects of mobile money regulations, consumer protection, and KYC rules are crucial in improving savings and credit access among rural residents. The study recommends that policymakers focus on improving the mobile money regulatory environment to promote inclusive financial practices within rural communities.

This concluding chapter draws on the thematic literature review in Part 1 and the extensive empirical findings of the contributed chapters from Parts 2 to 6 to provide reflections on evidence, and policy directions in charting the path forward regarding the viability of financial inclusion in driving sustainable rural development across the globe. In chronological order, the chapter summarises the key findings from all the empirical chapters and proceeds to discuss policy implications based on the findings. These policies mainly emphasise the importance of developing policies and implementing rural-based interventions by focusing on bridging rural–urban and gender differences in financial inclusion, boosting financial technological infrastructure, promoting digital and financial literacy, and designing policies that water down the cultural elements that reduce financial inclusion while widening its associated locational and gender gaps. Key challenges and recommendations in charting the path towards sustainable rural development through financial inclusion are discussed.