The Relationship Between Financial Inclusion and Household Income in Zimbabwe (2000- 2020)

Abstract

This study was motivated by the need to ascertain the relationship between financial inclusion and household income. The sub-objectives of the study were to establish financial indicators that can be used to measure financial inclusion in Zimbabwe and also to ascertain the individual characteristic that determine household income. This study adopted an explanatory research design based on econometric modelling of secondary numeric data. The author collected time-series data from 2000 to 2020. Household income was used as the dependent variable and the explanatory variables were adult account ownership, domestic credit, deposit rates, dependency ratio and the unemployment rate. Amongst the explanatory variables adult account ownership, domestic credit and deposit rates were used to proxy the level of financial inclusion in Zimbabwe. On the other hand, unemployment and the dependency ratio were adopted as the household characteristics which have an impact on household income. The data were tested for multicollinearity, stationarity and the overall model was tested for stability. The diagnostic test results showed that the data was non-stationary at the level and after modification the data series became stationary at first difference. E-views 9 was used to run an Ordinary Least Squares Regression analysis. The results of the study showed that there is a negative and statistically significant relationship between household income and account ownership. To add on, the study also found a positive and statistically significant relationship between household income and the dependency ratio. Domestic credit, deposit rates and unemployment were found to have a statistically insignificant relationship with household income. In this regard, the author concluded that there is a weak relationship between financial inclusion and household income in Zimbabwe. The findings of the study are reflective of the major economic issues that Zimbabwe is facing and these relate to high inflation, liquidity challenges and unavailability of long term credit facilities. The author recommends that the government must firstly achieve price stability to benefit from any programs of financial inclusion.