Expansion of financial access and its effect on welfare: Evidence from Zambia

This paper investigates how the expansion of formal financial access affects welfare using a pseudo-panel constructed from data collected in Zambia in 2009 and 2015. First, results show that up to 53% of Zambians transitioned into formal financial inclusion and they recorded better welfare than individuals who remained excluded or those who transitioned out of the formal financial sector. On average, the expansion, through increased financial inclusion had a positive and significant effect on the welfare of users, even after controlling for their previous welfare levels. The effect is more pronounced in rural areas where welfare improved by a factor of between 2.1 – 7.4 points, driven by proximity of less than 60 minutes to financial services points. Welfare improvements are accounted for by indicators such as acquisition of houses, use of better quality materials for the floor and the roof, use of modern source of energy for cooking and ownership of electronics.