Determinants of Cost to Client in Accessing Rural Financial Services – A Case of Zambia's Chongwe District

Abstract

Providing affordable access to appropriate financial services for the low-income population has been an on-going challenge for most developing nations, Zambia included. On this premise, this paper seeks to empirically investigate and quantify costs to clients in accessing financial services in the rural areas of Zambia, based on cross-sectional primary data collected in the Chongwe district from 236 households, documentation and key informant interviews. This study used the Probit and Heckman selection models to analyse cost to the client factors affecting the likelihood of accessing financial services (credit) by rural households in Zambia. Results revealed that households’ costs incurred by clients in accessing financial services are not limited to financial costs such interest, fees, transport and savings, etc., but equally other hidden costs such regulatory and compliance costs, economic costs, psychological costs, and social and cultural costs. The study recommends that policy formulation in the areas of financial inclusion, rural and agricultural finance should be based on reducing cost-to-client attributes such as the regulatory and compliance costs, economic costs and psychological costs identified above.

Keywords: costs to client, financial services, access to finance, Heckman two-stage model.