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Authors: Mutia Cecilia Kathini
Keywords: financial inclusion, digital credit, resilience, vulnerability
Abstract: Financial inclusion has been greatly embraced by policy makers as a potent development tool. An inclusive financial system boosts household income, resilience to economic shocks, savings, economic growth, and poverty reduction. In view of this, policymakers have integrated financial inclusion in their development strategies. This has led to a global increase in the proportion of the financially included individuals. Specifically, financial inclusion has risen up to 89% in Kenya (FSD Kenya, 2019) and has mostly been facilitated by digital loan apps and mobile phone money usage. Birthing of FinTech institutions has revolutionized access and usage of financial products. Specifically, there has been expansive access to digital credit in many developing countries. It is expected that access to digital credit should boost household incomes, their investment scores, and their resilience to economic shocks. However, digital credit has birthed mixed effects on the welfare of households in most developing countries. Economists have expressed concerns that most digital credit is not used for income generation purposes and does not, therefore, contribute to future incomes of households(Kaffenberger, Totolo, & Soursourian, 2018). Digital credit is also associated with high interest rates which increase households’ indebtedness and thus make them less resilient to economic shocks ( Helmy & Atalla, 2015). In view of this, this study will explore the effects of digital credit on the resilience of households in developing studies, a case study of Kenya. The study will employ a probit regression model and the Kenya National FinAccess 2019 survey data. Since the economic status of many households in developing countries are similar to those of Kenyan households, the policies formulated based on this study will be applicable to other developing countries.