Abstract
It has been acclaimed that financial inclusion is one sure way of moving the poor out of poverty. In Ghana, poverty levels are particularly high in the Northern regions. In the Wa West district of the Upper West Region, the poverty incidence rate is as high as 92.4% (GSS, 2015). In this study, the researchers survey 378 households across the Wa West district to ascertain and examine the level of poverty and financial inclusion among households. Specifically, we examine the extent to which financial inclusion affects household income in the district. The study confirmed high levels of poverty and extremely low levels of financial inclusion among households in the district. The findings showed that households that had less access to financial products and services, had low levels of household income making them poor. Our findings confirm that in our sample, financial inclusion is a significant factor in determining household income and by extension, poverty levels. Secondly, using ordinary least squares (OLS) estimation adjusting for robustness, we found that access to credit and withdrawal frequency significantly affect household expenditure, a proxy for poverty. We also found very low levels of education in our sample but ironically, the households did not consider education a major intervention to improve their standard of living, rather preferring farming and livestock support. We recommend that governments and other policymakers adopt a two-pronged approach by increasing financial inclusion in rural areas whilst tackling low poverty level issues.
Introduction
Poverty knows no boundary and remains a global phenomenon that concerns both global and national-level policymakers (UN, 2015). The United Nations Development Programme (UNDP), in 2015 reported that more than 800 million people around the world still live on less than $1.25 a day, and nearly one out of every nine people on earth goes to bed hungry every night. But the situation is not entirely dire. Global data suggests that poverty continues to reduce over time. In 2017, the World Bank reported a fall in the poverty rate to 9.2% from 10.1% in 2015. This means that now, about 689 million people live under $1.90 a day. This is a significant drop in global poverty compared to 36% in 1990. To date, over 1.2 billion people have been lifted out of extreme poverty. The problem however is that global poverty levels are disproportionally high in developing economies. Of this, Africa almost always has the highest statistic (AfDB, 2013; UN, 2015; World Bank, 2012, 2013, 2014).
A significant proportion of African people wallow in abject poverty, resulting in a poor standard of living and livelihood (UN, 2015). In 2013, the World Bank reported that 48% of Sub-Saharan African people still live on less than $1.25 per day. Ghana, in 2006, was the first Sub-Saharan African country to achieve target 1 of the Millennium Development Goals which is to halve extreme poverty and hunger by 2015. Despite this remarkable achievement, the incidence of poverty is still significant in Ghana, especially in rural areas. Recent reports from the Ghana Statistical Service (GSS), on Ghana’s poverty situation suggest that considering the upper poverty line of GH¢1,314, the proportion of Ghana’s population defined as poor is 24.2% in 2012/2013 (23.4% in 2016/2017). The poverty gap, which is the average income per year of the poor, falls below the poverty line (GH¢1,314 or equivalent to US$456.25 per annum) by 7.8% (8.4% in 2016/2017). These statistics suggest that some 6.4 million people in Ghana are poor (GSS, 2014a).
The incidence of poverty and an increasing poverty gap are unevenly distributed amongst the 10 administrative regions of Ghana (now demarcated into 16 regions). According to the Ghana Living Standard Survey (GLSS6) (GSS, 2014b), more than four in every 10 persons are poor in the Upper East (44.4%), one in every two in the Northern region (50.4%) and seven in every 10 in the Upper West (70.7%). Despite the proximity to each other, there appear to be very wide differences in poverty incidence among the three Northern regions (GSS, 2015).
Wa West district is one of the poorest districts in Ghana. According to the GSS (2015), Wa West has the highest poverty incidence and depth of 92.4% and 59% respectively in Ghana. The report showed that 74,297 people living in the district are poor. This is the highest number in the Upper West Region. These statistics paint a grim picture of poverty in the region. To date, the majority of poverty studies in the region have only recorded the statistics without examining the causes. This is the gap this research seeks to fill. On the other hand, empirical studies, particularly those done in Africa, have touted fintech solutions as a means of reducing the percentage of the unbanked thereby increasing income opportunities and/or eradicating poverty (Akudugu, 2013; Jabir, 2015; Koomson et al., 2020; Mohammed et al., 2017; Senyo & Karanasios, 2020; Senyo & Osabutey, 2020). This study merges these two ideas by examining how financial inclusion affects household income in the district. Specifically, this study looks into how or the extent to which financial inclusion (broadly measured to include fintech solutions) influences household income in the impoverished Wa West district of Ghana.
The United Nations Conference on Trade and Development (UNCTAD) defines financial inclusion as the effective access to and use of available, affordable, convenient, quality and sustainable financial services. According to the Human Development Report (UNDP, 2015), an inclusive financial system is essential for structural transformation and work creation. The report, however, suggested that over 2.5 billion people around the world, nearly half of the world’s adult population, are unbanked. It further argued that a major challenge to the operation and growth of businesses in developing economies remains the lack of access to finance.
Relevant research has shown that financial inclusion leads to inclusive development (Kim et al., 2018), yet Africa is largely lagging behind other continents in this area (AfDB, 2013; World Bank, 2013). Demirgüç-Kunt and Klapper (2012) have established that less than one out of every four adults in Africa own a bank account at any formal financial institution (the statistic is similar for Sub-Saharan Africa). This situation is not remarkably different in Ghana. In this study, the researchers explore the extent to which households in Wa West, a typically poor and rural district, are able to own bank accounts, save, borrow, make payments, manage risk and obtain financial advice, and how that has affected their poverty levels within the district. We also delve into the grey areas of usage and quality of the services that may be available and elicit the unspoken reasons why access or usage may have been low. This provides the research with more robust findings and appropriate policy prescriptions regarding financial inclusion for policymaking and implementation in the district and other rural and peri-urban communities in Ghana with the ultimate goal of eliminating poverty.
The significance of this research is founded on the implications it has for the poor, development finance practitioners, policymakers and future research on the subject in Ghana and beyond. The poor in rural Ghana are the major beneficiaries of this study as it shows how financial inclusion plays a vital role in their lives especially in poverty reduction for those who have access to formal financial services. It seeks to promote participation in community financial inclusion programmes.
This study is organised as follows; the next section explores existing literature in financial inclusion and poverty; then followed by the methodological approach used for the study; then the analysis and findings are elaborated; then finally the study is concluded with a summary of findings and recommendations.
Literature Review
The Concept of Financial Inclusion
Financial inclusion is viewed as a critical determinant of socio-economic development, particularly in low-income countries. It is defined as the process of making basic formal financial services available, affordable and readily usable by all members of an economy especially the poor (Jabir, 2015). Jabir (2015) identified ownership of account, savings products and access to basic credit, insurance services and easy withdrawal from bank accounts through points of sale and debit cards as basic formal financial services.
The World Bank Global Financial Report (Mundai, 2014) defines financial inclusion as the proportion of individuals and firms that use financial services. The report noted a clear-cut distinction between lack of usage and lack of access. The lack of use does not necessarily mean lack of access as some people may have access but opt not to use certain financial services for various reasons. The report identified cost, legal barriers, market failures, religious beliefs or cultural phenomenon as some of the reasons that may make people financially excluded. According to the AfDB (2013), financial inclusion refers to all the initiatives that make formal financial services available, accessible and affordable to all segments of the population.
The Alliance for Financial Inclusion (AFI) (2012) offers a more comprehensible definition of financial inclusion. It looks at the concept beyond the dichotomous classification of individuals and enterprises as to whether or not they are included, to view the concept as multi-dimensional. To this end, the AFI Financial Inclusion Data Working Group agreed on three main dimensions of financial inclusion that provide the underpinning for data collection. These include access, which is about making financial services available and affordable to users; usage, which involves making customers use financial services frequently and regularly; and finally quality, which entails making financial services tailored to clients’ needs (AFI, 2012).
Financial Inclusion in Ghana
According to Akudugu (2013), the formal financial market of Ghana covers only 40% of the population, meaning 60% of the population is still unbanked. In other words, only two in every five Ghanaian adults are included in the formal financial sector, the rest being excluded. It, therefore, can be inferred that the level of financial inclusion in the formal financial market in Ghana is less than the global financial inclusion index of 50% as reported by Demirgüç-Kunt and Klapper (2012), although it is higher when compared to the Sub-Saharan Africa average of 24% found by Akudugu (2013).
A rather alarming statistic was given by Fidelity Bank in 2016, Ghana’s bank of the year for 2015. The bank, in its justification statement for an expansion programme being rolled out, acknowledged that about 70% of Ghanaians remain unbanked and are excluded from the formal financial system. The bank also estimated the ratio of bank branches to Ghanaians to be 5:100,000, and many peri-urban and rural communities remain underserved.
The financial inclusion situation in Wa West is not any better than what is described above. The entire district, until 2015 when the GN Bank extended its operations to the district capital Wechiau, could boast of only one Cooperative Credit Union at Lassia Tuolu as the only formal financial institution. The nearest point of access to financial services has been Wa, the regional capital, the closest community being about 5 km away. Households, therefore, resort to various informal forms of obtaining financial services such as ‘Susu’ groups, financial NGOs, Shylock money lenders and mobile money operators.
The Consultative Group to Assist the Poor (CGAP) (2014) succinctly captured the meaning and essence of financial inclusion in its vision statement as ‘a world where everyone has access to and can use the financial services they need to improve their lives’. For the purpose of this study, we will adopt a hybrid of the definitions given earlier and then relate the same to rural poor households. Thus, financial inclusion is a phenomenon whereby households have access to and use basic financial services suitable to the peculiar needs of the poor. Basic financial services herein mentioned include ownership of account (bank account or mobile wallet), ability to build savings, take credit, withdraw money, insure against risk and obtain advice.
The Concept of Poverty
Poverty is an age-old concept, relative to the place and time one lives in. It has been variously defined by academia and practitioners, without any single and generally accepted definition. Poverty could be likened to a derivative as it has never been defined in itself but through other underlying concepts such as growth, deprivation, well-being, exclusion, equity, etc. Poverty is complex and multidimensional in nature which is why the plurality of its definition is unavoidable.
Foster (1998) argues that in order to operationalise the definition of poverty, a threshold should be defined in terms of absolute and relative poverty. To him, in the case of absolute poverty, a group-specific absolute poverty line or threshold (food, clothing, healthcare and shelter) should be defined on the basis of resources required by that group to meet the basic needs of that group. Relative poverty, on the other hand, should be viewed as a measure of the living standard for the income distribution such as the mean, median or another quintile that actually identifies the cut off as some proportion of this standard.
A more comprehensive definition of poverty is offered by the UNDP aptly referred to as human poverty. The UNDP draws on several other definitions, integrates their essential elements and enhances the process with a focus on the concept of capabilities. Poverty, therefore, is defined as the state of deprivation or denial of basic choices and opportunities needed to enjoy a decent standard of living, live a long, healthy, constructive life and participate in employment and the social, political and cultural life of the community.
Relating Financial Inclusion to Poverty
Financial inclusion has several benefits for national development. Literature has shown that communities with access to saving instruments experience increased savings, productive investments as well as consumption and female empowerment (Aportela, 1998; Ashraf et al., 2010). It also leads to poverty reduction, decrease in the level of inequality and enhanced private investments (Allen et al., 2012).
The purpose and resource needs of individuals and firms in a traditional economic model are different. Individuals offer their services to economic units for wages in order to sustain their life cycle consumption. According to Cull et al. (2014), when people are young, they need to invest; at the prime of their earnings power, they save; and in old age, they dis-save. In other words, households as surplus units make available their surplus funds to the financial system which converts these surplus earnings into savings and then makes the same available in the market as investable funds. Firms, on the other hand, are generally net users of funds, and will usually contend for available scarce financial resources to fund their operations and growth. It takes the financial system, therefore, to channel these surplus financial resources to the capital-scarce borrowers who are looking to use them for investment.
Collins et al. (2009) observed that for a number of reasons, however, the poor are both ‘consuming households and self-employed firms’ and as such their consumption and production decisions are inseparable. The poor, as a matter of necessity and not by choice, live and work in the informal sector which is typically excluded from the formal financial system. Given the dual decision-making roles, poor households assume, the typical difference between consumers and firms with respect to their financial objectives and resource needs is often concealed.
The UK Department for International Development (DFID, 2004) observed that
By enabling the poor to draw down accumulated savings and/or borrow to invest in income-enhancing assets (including human assets, e.g. through health and education) and start micro-enterprises, wider access to financial services generates employment, increases incomes and reduces poverty … by enabling the poor to save in a secure place, the provision of bank accounts (or other savings facilities) and insurance allow the poor to establish a buffer against shocks, thus reducing vulnerability and minimizing the need for other coping strategies such as asset sales that may damage long-term income prospects.
Further to this, the UN has acknowledged access to financial services as a key driver to its post-2015 development agenda. To this end, the concept has been prominently identified and incorporated in several of the proposed post-2015 development goals and targets.
Sustainable Development Goal (SDG) 1, which is concerned with ending poverty in all its forms everywhere has a target of increasing access to financial services by 2030, to all men and women with a particular focus on the poor and vulnerable. Again, under SDG 2, the UN has considered access to financial services as critical in doubling ‘agricultural productivity and incomes of small-scale food producers, in particular women, indigenous peoples, family farmers, pastoralists and fishers, towards ending hunger, achieving food security and improved nutrition and promoting sustainable agriculture’. Access to financial services is also among a number of reforms proposed by the UN under SDG 5 aimed to ‘achieve gender equality and empower all women and girls’.
Access to financial services is also mentioned prominently in SDGs 8 and 9. In SDG 8, access to financial services is included in development-oriented policies that should be promoted to support productive activities, decent job creation, entrepreneurship, creativity and innovation and encourage the formalisation and growth of micro, small and medium-sized enterprises. It is again suggested under SDG 8 that, the capacity of the domestic financial system should be strengthened to encourage and expand access to banking, insurance and financial services for all. In order to build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation, SDG 9 recommends increased access of small-scale enterprises in developing countries to financial services including affordable credit (UNCTAD, 2015).
Theoretical Background
The cumulative and cyclical interdependencies theory is the main underpinning theory adopted for the study (Abdulai & Shamshiry, 2014; Addae-Korankye, 2019; Austin, 2007; Bradshaw, 2007). This theory views individual units as stuck in an unending spiral of opportunities and associated problems, where problems create other problems by restricting opportunities. As the problem creates more problems, it becomes more difficult to resolve them. This theory goes further to say the individual units and resources are directly linked in that less resources limit individual potentials and vice versa. Thus, we hypothesise that lack of financial inclusion (resource) leads to low individual improvement (thus poverty in this case).
Research Methodology
Study Area
This study covers 378 households 1 statistically selected from a population of 23,615 households. However, 358 out of the 378 households sampled responded. Wa West district is located in the Western part of the region and shares physical boundaries with Nadowli-Kaleo district to the North, Sawla-Tuna-Kalba district to the South, Wa Municipal to the East and the Republic of Burkina Faso to the West. The district was carved out of the then Wa district in 2004 by Legislative Instrument 1751 with its capital at Wechiau.
The Wa West District Medium-Term Development Plan (WWDA, 2012) estimates that more than 90% of the district’s labour force work in the agricultural sector with agriculture accounting for about 80% of the district’s economy. The rural economy is greatly dominated by environmentally dependent and seasonal products such as farm produce, livestock, poultry birds, shea-butter, locally brewed beer (pito), fuelwood and charcoal. Income levels are low, seasonal and unpredictable. Majority of the people, who are mainly farmers, have very little livelihood activities to engage their energies especially during the dry season and for that matter exacerbate their vulnerability and poverty situation.
The district currently (since 2015) has only one formal banking facility, that is, GN Bank, which is located at the district capital Wechiau, and access to formal financial services is augmented by mobile money platforms across the district. Hitherto, people had to travel for about 20 km to Wa or helplessly rely on traditional modes of obtaining financial services including moneylenders, ‘Susu’ group/agents, etc.
Research Design
The study employs a cross-sectional exploratory survey design. The data covers 378 households statistically selected from a population of 23,615 households representing 222 communities within five area councils across Wa West district of the Upper West Region of Ghana.
A stratified sampling method was adopted for the research. The researchers obtained a list of all communities and their corresponding number of households per district, clustered them into area councils and proportionately selected communities for data collection using a random probability sampling technique. The roll-forward technique used to select the communities entails subtracting the sample interval of 62 from the total households per community and selecting a community each time the result turns positive. Thereafter, the number of households to administer the questionnaires (sample size) is distributed proportionally among the communities selected using the respective number of households per community as weights. To collect the data, the researchers engaged locally trained assistants who explained the questionnaires to the respondents in their dialects (i.e., Brifor, Waali and Dagaari).
The researchers, on the basis of the number of households being considered for each community covered in the study, randomly drew the sample from a georeferenced household database of individual communities. At each of the selected households, the head of the household is interviewed.
Ethical Considerations
The research was conducted in line with the relevant ethics, that is, informed consent, confidentiality and anonymity were applied in collecting the data. By informed consent, the researchers ensured that respondents were duly notified about the purpose of the study and offered the free will to decide on whether or not to participate. That is, no respondent participated in this study against his/her will. Confidentiality was also guaranteed in the sense that, responses obtained from respondents are solely used for the purposes of this research. The researchers also ensured that the identity of respondents was protected, which is why any information that sought to disclose respondent’s identity, for example, name, email, residential address, etc., were excluded from the questionnaire.
Research Model Specification
After gathering the data, we run an OLS regression to examine how financial inclusion affects poverty. The dependent variable, household poverty is regressed on the indicators of financial inclusion which we gather from the questionnaire. Household poverty is proxied by household spending/expenditure (on education, health, food, housing, non-food items, as well as social and lifestyle activities) (Saunders et al., 2002). Financial inclusion, on the other hand, is estimated using six indicators: ownership of account, frequency of savings, frequency of withdrawals, access and usage of credit, access and usage of insurance and access and usage of financial advice (Demirgüç-Kunt & Klapper, 2013). Following Allen et al. (2012) and Jabir (2015), we measure financial inclusion using data on households’ ownership of bank account or mobile money wallet, frequency of withdrawals from account, deposits/savings into account, access to credit, insurance and financial advice.
Thus, the research model specified for this study is stated mathematically as follows:
where
HE = household expenditure (dependent variable),
OA = ownership of account (variables of interest),
FOS = frequency of savings (variables of interest),
FOW = frequency of withdrawals (variables of interest),
AUC = access to and usage of credit (variables of interest),
AUI = access to and usage of insurance (variables of interest),
AUA = access to and usage of financial advice (variables of interest),
Ε = error term or stochastic noise,
I = response subscript representing respondents,
β0 = constant,
β1 –β6 = coefficients of the respective variables.
Analysis and Discussions of Findings
Demographic Data
Demographics.
More than 60% of the respondents were married, about 4% of them were divorced and 14.1% responded they were either single or widowed.
The data also showed that close to 70% of them have no form of formal education. About 13% had primary and secondary level education. The number of respondents who had attained higher education was very few. Only five respondents out of 358 had a bachelor’s degree whilst 12 of them had a diploma (Table 1).
Level of Financial Inclusion
Summary of Level of Financial Inclusion Among Respondents.
Access to and Usage of Basic Financial Services
Financial Inclusion.
We found that most of them have accounts with thrift societies (popularly known as ‘Susu’ or rotating credit and savings association (ROSCA). Very few of them have accounts with mainstream financial institutions like commercial and rural banks. Aside from ‘Susu’ accounting for about 40% of the accounts held by the respondents, mobile money accounts were the second most used financial services operator/platform by the respondents. The 397 responses recorded show that some respondents held more than one type of account.
Also, about 40% of the respondents used savings accounts whilst close to 18% held mobile money accounts or wallets. One respondent had a fixed deposit account. We can infer from the large missing response that more of the respondents do not have any financial accounts (Table 3).
Of those who have accounts, 105 out of the 216, used a passbook for their transactions. This represented about 49%. The next product highly patronised was mobile wallet, which accounted for about 20% of the financial products the respondents used. The least used products were E-zwich and E-banking.
We found that over 32% of them got to know their current financial institution through recommendations from friends and family (Table 4). This was followed by ‘through their representatives’ (which accounted for about 15%). Radio broadcast was also how 8.7% of the respondents got to know about their financial institutions. The least among the means of contact was newspapers, which is unsurprising in view of the level of education or literacy in the district.
Channel of Respondents Awareness.
Frequency of Savings
We found that close to 70% of the respondents said they have saved some money (through a ‘Susu’ group or at the bank) over the past 12 months whilst the rest did not answer or said no (Table 2).
Majority of respondents (about 34%) saved in or through ‘Susu’ schemes, and another (24%) saved in their mobile money wallets accounts. Savings accounts were also used by 48 respondents, representing 13.4%, while two respondents saved in their current accounts or bought an insurance premium.
Access to Savings and Loans.
Frequency of Withdrawals
With respect to the frequency of withdrawals, we found that over 36% of them used passbooks for withdrawals. This buttresses the fact that most of them have ‘Susu’ accounts. Another 15.4% of respondents used mobile money wallets for their withdrawals. Few of the respondents used ATMs for withdrawal (Table 5).
We also found that about 45% did not typically make withdrawals. Those who made withdrawals once or twice a year were 36% whilst those who made withdrawals 3–5 times were much less (about 6%). Two of the respondents said they made withdrawals six or more times.
Access to and Usage of Credit
With respect to access to credit, we found from the responses that in the past 12 months, only 32% of the respondents did apply for a loan or credit. The rest of the respondents, numbering 239, did not apply for any loan (Table 5). That means, fewer respondents do apply for a loan.
When respondents were asked why they have not applied for a loan, the majority of them, about 22%, said they did not know where to get a loan. This suggests that the financial institutions they hold an account with do not offer them loans when they need one. Others (about 12% each) said their income is too low to qualify them for a loan or they did not need a loan. Some agreed they did not have regular income to be able to pay up a loan. Others, about 8%, said they already have too much debt (Table 5). Table 6 presents the responses that were obtained.
About 40% (which is 84% of the valid responses) of the total respondents said they have had successful loan applications within the last 12 months whilst 7.5% (representing 16% of the valid responses) said no.
We also found that over 71% of the valid responses of successful loan applications were from ‘Susu’ lending groups. With the remainder, 21% of the valid responses, sourced their loan from money lenders whilst the rest of the respondents got their loans from mainline financial institutions like banks and cooperative unions.
For those whose loan application was refused, we found that a major reason for the refusal was their income was insufficient to support the loan they applied for. Thus 36 out of the 73 responses gotten attributed low income as a reason for the refusal. The next major reason was that respondents could not provide collateral to back the loan (25% of the respondents affirmed this). Other reasons were they could not get a guarantor and previous debt history, among others (Table 5).
Access to and Usage of Insurance Services
Access to Insurance.
With respect to the kind of short-term insurance respondents have, 103 respondents out of 202 said they had no insurance. This is inconsistent with the earlier response obtained about whether or not respondents had any insurance cover. Of the remainder, 94 of them said they had medical or health insurance under the National Health Insurance Scheme. Very few (less than two) had motor and property and commercial insurance (Table 6).
Majority of the respondent (175 of them) did not have any long-term insurance. The highest long-term insurance the respondents had was life insurance, to which 20 respondents had subscribed. The next is retirement plan, with 11 respondents subscribing. Funeral, education and investment/saving plans had the least subscription. Also, 165 out of 254 respondents (representing 65%) stated they do not understand how it works. Again, 68 of the respondents (27%) said they could not afford monthly premiums (Table 6).
Access to and Usage of Financial Advice
In this section, we sort to find out whether respondents are able to obtain financial advice from financial institutions and/or professionals. About 80% said they did not have such services from their financial institutions or any professional. Only 70 out of 354 respondents said they did have some financial advice as shown in the Table 7.
Access to Financial Advice.
Level of Household Poverty
Summary of Household Consumption Expenditure by Category.
Educational Expenditure
Educational Aspiration.
We sought to ascertain how much it costs to educate or train the household members engaged in educational pursuits over the last 12 months. A higher proportion of the respondents, that is, 129 respondents representing 45% of total valid responses obtained said it costs the household less than GH¢250 (Table 8). Eight-seven households, representing 30.4% also said they spend between GH¢251 and GH¢500 annually on the education and training of their household members. Fifteen of the respondents said they spend about GH¢1,000–1,250 on education whilst another 10 respondents spend a little bit more. Fourteen of them said they spend more than GH¢2,000 on education alone (Table 8).
We also found out if respondents had some form of support in paying for the cost of education for their household members. In all, 297 of the respondents did not answer the question (Table 9). This accounts for 83% of the response. Perhaps, respondents did not understand the importance of the question. We inferred that the respondents do not have any form of external financing support, hence did not answer the question. Around 10% of them, however, said they received government scholarships whilst 19 of them said other relations of their extended family helped them pay for the cost of their household members’ education. Three respondents indicated they had support from NGO’s (Table 9).
Health Expenditure
We sought to find out how much the households spent on healthcare by starting with the question, whether or not any member of the respondent’s household was admitted to the hospital or any health facility in the last 12 months. We got a total of 122 valid responses whilst the rest declined to comment (Table 8 & 10). Of the total valid responses received, 102 respondents answered yes, representing 84% of the valid responses whilst 16% said no (Table 10).
Health Expenditure.
Housing and Non-food Expenditure
We sought to find out how much households spent on housing and non-food expenditure. We got a total of 330 valid responses whilst 28 of them declined to comment. A significant proportion of respondents (about 54%) spent less than GH¢250. Another 16% spent about GH¢251–500 while some 21 respondents spent about GH¢501–750 (Table 8).
With regards to how much the households spent on lighting, we got a total of 334 valid responses whilst 15 of them declined to comment (Table 11). We found again that more of the respondents paid less for lighting for their homes whilst less and less paid more. These facts show that the level of income for most of the respondents is low and their living conditions primitive.
Cooking and Lighting Expenditure in the Last 12 Months.
Food Purchases
Staple Food Stuffs Households Purchase in the Last 12 Months.
Duration Households Consumed Their Own Farm Produce in the Last 12 Months.
We then asked the respondents how much they spent on buying staples, other than the ones they get from their farm. We found that again, more of the respondents spend less on their staples whiles less of them spent more on them. With this, we are able to have a fair idea of the level of income and living conditions of the respondents.
Amount Spent on Beverages, Drinks, Water for House Chores, Meat, Fish and Ingredients in the Last 12 Months.
Social and Lifestyle Expenses
We also assessed how much respondents spent on social and lifestyle choices like dowry, outdooring, festivals, remittances, dues, gifts, zakat, tithe, funerals, sacrifices, offerings, cigarette, alcohol, cola nuts and pito (a local beer). We found that more than half of the respondents (about 70%) spent less than GH¢250 on these things. About 78 of the respondents spent between GH¢1,250 and GH¢251. Very few of the respondents spent more than GH¢1,250 (Table 14).
We asked the respondents whether they think access to financial services would help improve their economic situation. Responses gotten indicate that 299 out of 307 total valid responses obtained for this question agreed to this assertion. This represents 97%. However, two of the respondents did not agree (Table 10).
We then asked respondents what, in their opinion, access to financial services could do to elevate their economic situation. More of the respondents (34% and 44% respectively) think access to financial services will increase their productivity and help them meet their financial goals; 53 of them think that it would help create employment for them. Only three respondents think it could help improve access to education.
We then asked them how, in their opinion, financial inclusion could be improved within their locality (Table 10). A higher percentage opine that when more banks and financial institutions come into the locality, it will help increase financial inclusion. The rest of the respondents thought financial education and government intervention is the way to go.
We finally asked respondents what they think should be done to reduce poverty in Wa West. Majority of the respondents think farming is their way out of poverty. Respondents suggested that subsidised fertilisers, availability of seeds, irrigation dams, farming tools and equipment, government subsidies, etc. can help reduce poverty in their locality (Table 10). The respondents think the next best alternative is the provision and access to funding for their businesses.
Thirdly, support from well-acclaimed sons and daughters from the diaspora could come back and support the local communities. Education seems to be the least important measure to them—only four respondents suggested education as a measure to alleviate poverty.
Regression Results
The researchers run a regression using the data derived from the questionnaires. Responses from the financial inclusion metrics were averaged and regressed on household expenditure. We used an OLS estimation technique and included a second model using robust standard errors as a check for biases.
Regression Results.
The R2 for the regression models is 52%. This means 52% of the variation in the dependent variable is explained by the independent variables. The number of observations is 358.
From the analysis, a positive relationship is observed between ownership of account, frequency of savings, frequency of withdrawals, access to credit and access to finance with the household expenditure (which is a proxy for household poverty). However only withdrawals frequency and access to credit are significant at 1% significance level hence, they have predictive power. This is consistent with the finding of Allen et al. (2012) who found that financial inclusion leads to poverty reduction, a decrease in the level of inequality and enhanced private investment. Access to insurance also had a negative insignificant effect on household expenditure.
The coefficient of 1.309 for access to credit means that when access to credit is increased by 1 unit, household expenditure will increase by 1.309, which reduces poverty. For the frequency of withdrawals, when the frequency of withdrawals increases by 1 unit, household expenditure will increase by 0.445 units. These findings are consistent with the empirical literature (Table 15).
Conclusion
This study largely focused on measuring the level of poverty and financial inclusion using various metrics in Wa West district in the Northern part of Ghana. The data showed very low levels of education in our sample area. Poverty levels were also very high but ironically the respondents did not consider education a major poverty alleviating intervention.
Given the six indicators of financial inclusion, that is, access to and usage of financial accounts, frequency of savings and withdrawals, as well as access to and usage of credit, insurance and financial advisory services, we found that the level of financial inclusion in the district is very low. The weak financial standing has made it difficult for people of Wa West to confront poverty within their households. But the respondents agreed that financial inclusion would improve their standards of living.
We conclude by saying that there is a link between the indicators of financial inclusion and poverty levels among households in Wa West district. This relationship is positive or direct in that as household become less inclusive financially, their poverty levels become high or worse. This is consistent with earlier studies conducted on the subject (Allen et al., 2012; DFID, 2004).
We found that limited access to and usage of financial services has denied many households the opportunity to expand and better their sources of livelihood. Thus, the people of Wa West are mainly engaged in peasant farming, barely providing to meet their daily needs. For instance, without access to credit, farmers who are desirous of expanding and scaling up their farms are unable to do so. Respondents strongly opine that the availability of affordable financial services and other external support for farm input credit would catapult them out of poverty. However, they do not think education is key to improve their standards of living. This was established from the amount of their budget spent on education (i.e., 18%) being the least of all the five thematic areas of household expenditure. The respondents were also of the view that increased investments and productivity in farming is what that can take them out of poverty.
Recommendations
Financial inclusion affects economic growth, so factors should be put in place to improve financial inclusion which includes the following recommendations.
The Microfinance and Small Loans Centre should endeavour to decentralise its operations to all the 216 districts in the country, with special focus and priority on rural districts like the Wa West district. This will help bring financial services to the doorsteps of the productive poor, whom the Centre was established to support.
The government also should provide some incentives to financial institutions including commercial banks, for example, concessionary taxes as had been for rural banks, to attract them to rural districts. This will encourage financial institutions to consider expanding their branch networks to rural districts like Wa West in order to deepen the level of financial inclusion.
The good people of Wa West district should consider establishing a rural bank within the area to serve the people. A number of ‘Susu’ groups and scheme exist and operate in the district, which is a good precursor for mobilising deposits for the rural bank, if set up.
Financial literacy should be given a priority especially in the Northern parts of Ghana. Key actors, such as the Business Advisory Centre of the National Board for Small Scale Industries (NBSSI), Non-formal Education division of the Ghana Education Service should create programmes and financial education modules for rural sector education. Other stakeholders like community-based organisations (CBOs) and NGOs should, through advocacy, sensitisation and training, contribute to make financial education accessible to rural households. This will make it possible for rural households to develop an interest in saving and building assets to invest and increase their access to funding when they need it. In the long run, this would help lift them out of poverty. The second strand of recommendation is focused on reducing household poverty. To this end, households should cut down their expenditure on social and lifestyle activities to allow for more resources to be spent on the education of their wards.
Rural households, particularly farmers should avail themselves to take advantage of new government initiatives, for example, the Planting for Food and Jobs, One-District-One-Factory, One-Village-One-Dam and Free Senior High School Programmes, to better their lots. This will ease their burden on educating their children, increase their access to credit and improve their livelihoods.
The government should improve on infrastructure in rural districts, particularly feeder roads network to facilitate transportation of farm produce to market centres and reduce post-harvest losses. Thus, the government’s infrastructure projects should seek to integrate and develop value chains along a wide range of activity.
The private sector should also consider dedicating some resources or applying their budgets on corporate social responsibility on sectors and activities that have the potential of generating multiplier effects in areas of job creation, value addition and knowledge sharing.
