| Abstract: |
The socioeconomic transformation process in post-apartheid South Africa has
generated research on a wide range of economic issues, in particular,
inequality and poverty. Surprisingly, there is limited empirical analysis on
financial inclusion. This paper fills this void in the literature by answering
two questions: (i) Does financial inclusion improve welfare? (ii) Is the
benefit from using formal financial services greater than from using
non-formal financial services? The paper uses a unique cross-sectional dataset
on use of financial products over the period 2006–2011. Two measures of
welfare are constructed – a well-being index and a wealth index. The sample is
divided into users of formal financial services and users of non-formal
financial services. The focus is on the differences in the welfare of the two
groups. This difference in welfare is then decomposed through the Recentered
Influence Function (RIF) approach. Finally, an OLS regression of the
recentered welfare is estimated across quantiles for each group. Results show
that: (i) overall, using formal financial products is associated with higher
welfare; (ii) regardless of the measure of welfare used, the results are
qualitatively similar: the wealth index picks up differences in the top
quantiles, while the well-being index picks the differences in the lower
quantiles; (iii) welfare disparities are accounted for by the unexplained
factors related to income and education; and (iv) there are welfare gains from
using non-formal credit and insurance products for individuals in the lower
quantiles. The results suggest that the pursuit of financial inclusion should
be complemented with policies that improve education and incomes, especially
for the marginalised. Key words:Financial Inclusion; Recentered Influence
Function; South Africa |