Financial Stability in Kenya. Does Inclusive Finance Matter?

Abstract

Kenya has made significant stride in financial inclusion compared to other Sub-Saharan economies. Using time series data for the period 2004 to 2017 and Structural Equation Modelling (SEM), this study seeks to investigate whether there are trade-offs or synergies between inclusive finance and financial stability. Previous evidence suggests both positive and negative effects, but evidence on emerging economies such as Kenya is clearly lacking. This can partly be attributed to scarcity of data on inclusive finance. Estimation results reveal that access and usage of financial services may foster financial stability in Kenya. Therefore, policies that enhance access and usage of financial services may boost financial stability.

Keywords: Financial Inclusion, Structural Equation Model, Financial Stability

JEL classification: G21, G28, O16.

DOI: 10.7176/JESD/10-6-07

Publication date:March 31^st 2019