Quality financial inclusion, financial vulnerability, and subjective well-being : evidence from South Africa

dc.contributor.advisorAshenafi Beyene, Fantaen_ZA
dc.contributor.authorKudakwashe Joshua, Chipunzaen_ZA
dc.contributor.otherStellenbosch University. Faculty of Economic and Management Sciences. University of Stellenbosch Business School.en_ZA
dc.date.accessioned2023-02-15T13:43:14Z
dc.date.accessioned2023-11-16T08:18:26Z
dc.date.available2023-02-15T13:43:14Z
dc.date.available2023-11-16T08:18:26Z
dc.date.issued2023-03
dc.descriptionThesis (PhD)--Stellenbosch University, 2022. en_ZA
dc.description.abstractENGLISH SUMMARY: Financial inclusion has been at the forefront of the policy agenda in many developing countries due to its potential to improve consumers’ welfare as indicated by, for example, subjective well-being, financial vulnerability, and financial resilience. Beyond the provision of basic financial products, the policy is shifting to improving the quality of financial inclusion which refers to the use of diversified financial products that are flexible, easy to understand, appropriate, and affordable. This is important considering that although 84% of adults in South Africa own bank accounts, consumers remain financially vulnerable, and the subjective wellbeing of consumers, measured by life satisfaction, remains lower relative to other emerging and developed economies. Moreover, only 18% of consumers in South Africa can raise emergency funds which might make it difficult for them to be financially resilient to adverse shocks. The need for financial resilience has been brought to the fore by the recent COVID-19 pandemic which rendered many consumers in South Africa unable to meet basic living costs. To understand how quality financial inclusion could enhance subjective well being, bolster financial resilience, and reduce the financial vulnerability of consumers, the thesis has been divided into four empirical chapters. The study is based on the FinScope 2015 consumer survey of South Africa except for chapter three where the FinScope 2021 consumer survey of South Africa was used. The first empirical chapter computed a multi-dimensional demand-side measure of quality financial inclusion using polychoric principal component analysis. This composite index of quality financial inclusion was more comprehensive than previous measures since it captured indicators of affordability, flexibility, and appropriateness which had been excluded in previous composite indices. This is pertinent because an indicative measure of one’s inclusion in the financial system should capture as many dimensions as possible. Moreover, the inclusion of these dimensions is consistent with the utility maximisation theory, bounded rationality theory, and preference for flexibility theory which suggest that consumers derive value from using financial products that are affordable, appropriate, and flexible. Employing an ordinary least squares regression, the results suggest that females had higher quality financial inclusion than males while bank distance was a statistically insignificant determinant. The proposed index of quality financial inclusion could be used by researchers in assessing how a broader focus on financial inclusion influences consumers’ welfare. The second empirical chapter examined the impact of quality financial inclusion on consumers at various levels of financial vulnerability. The link between the use of financial products and financial vulnerability is explained by the capital conduit theory, social insurance theory, and debt intermediation theory. These theories assert that insurance hedges the risk of unforeseen life events while saving platforms and credit can help consumers to invest in income-generating projects, which contribute to lower financial vulnerability. However, previous composite measures of financial vulnerability excluded dimensions of saving vulnerability and lifestyle vulnerability. Therefore, this study makes a methodological contribution by computing an index of financial vulnerability that captures dimensions of saving vulnerability, expenditure vulnerability, and lifestyle vulnerability. Moreover, unlike previous studies that relied on single indicators or narrower indices of financial inclusion, the study extends extant literature by examining the link between a broader measure of quality financial inclusion and consumer financial vulnerability. The results from the method of moments quantile regression analysis showed that consumers with the highest quality of financial inclusion (top 20%) were less financially vulnerable, but this was less pronounced among the more vulnerable consumers. Implicitly, policymakers and financial institutions need to improve the quality of financial inclusion as this contributes to the enhancement of consumers’ welfare through the mitigation of financial vulnerability. The third empirical chapter examined the role of various channels of financial inclusion in building financial resilience to the COVID-19-induced income shock. The link between financial product use and financial resilience is explained by social insurance theory, risk sharing models, and precautionary saving theory. These theories suggest that consumers can become financially resilient to shocks by purchasing insurance, receiving remittances, and postponing current consumption. However, previous studies focused on the role of financial inclusion on financial resilience to agricultural sector-specific shocks and region-specific shocks. Therefore, the current study contributes to the literature by examining the various channels of financial inclusion through which consumers enhanced their financial resilience to the nationwide COVID-19 pandemic that reduced the income of most consumers. Results from propensity score matching suggested that consumers that employed formal channels to save, insure and borrow did not experience a statistically significant decline in consumption after the COVID-19-induced income shock. Also, a robustness check showed that indebted consumers employing both formal and informal channels were not financially resilient to the COVID-19- induced income shock. These results suggest that policymakers ought to increase access to formal financial services and complement it with financial education programs targeting debt management to build financial resilience to adverse economic shocks in the future. The fourth empirical chapter contributed to the empirical literature by examining whether an improvement in the quality of financial inclusion could indirectly enhance the subjective wellbeing of consumers via asset accumulation. The study was based on the theory of institutional saving, Quach’s (2016) theoretical model, and social insurance theory which suggests that saving, credit, and insurance could improve asset ownership. In turn, an increase in asset endowment could enhance the subjective well-being of consumers according to the asset effects theory. To this end, the chapter extends previous literature that had only examined how various channels of financial inclusion had influenced asset accumulation by examining whether this, in turn, improves the subjective well-being of consumers. The results from the partial least squares path model suggested that an increase in the quality of financial inclusion had a positive indirect effect on the subjective well-being of consumers via asset accumulation. The implication to social policymakers is that an improvement in the quality of financial inclusion could indirectly enhance the subjective well-being of consumers via asset accumulation. The overarching evidence presented in this thesis suggests that an improvement in the quality of financial inclusion can play a significant role in reducing financial vulnerability and indirectly improving the subjective well-being of consumers via asset accumulation. Moreover, the evidence emerging from the study suggests that increased access to formal financial services bolsters consumers’ financial resilience and prepares them against future economic shocks. Noteworthy, the study relied on a cross-sectional dataset of South Africa hence future studies should employ panel data to assess the dynamic link between quality financial inclusion, financial vulnerability, and subjective well-being.en_ZA
dc.description.abstractAFRIKAANSE OPSOMMING: In onlangse dekades was finansiele insluiting ’n prioriteit vir die sentrale banke van ontwikkelende lande en internasionale ontwikkeling finansieringsinstellings. Boonop het die Suid-Afrikaanse regering finansiele insluiting bevorder, wat gelei het tot ’n sterk toename in die proporsie Suid-Afrikaners met toegang tot finansiele dienste. In Suid-Afrika het bankrekening-eienaarskap gestyg tot 85% in 2021 van 54% in 2011. Dit is egter nie geewenaar deur verbetering in belangrike verbruikerswelstand-aanduiders, soos finansiele kwesbaarheid, finansiele veerkragtigheid, opbou van bates en subjektiewe welstand nie. Byvoorbeeld, slegs 18% van Suid-Afrikaners kan noodfondse vind na ’n negatiewe skok, terwyl die subjektiewe welstand van Suid-Afrikaners redelik laag is in die lig van ’n lewensbevrediging-koers van gemiddeld 4.7 in vergelyking met OESO se 6.5 op ’n skaal van 0-10. Gegewe dat blote bankrekening-eienaarskap dalk nie ’n aanwyser is van verbeterde welvaart nie, word ’n breer fokus op die kwaliteit van finansiele insluiting benodig deur beleidmakers en hoe dit verbruikerwelvaart-aanwysers raak uit ’n vraagkant-perspektief. Boonop moet beleid die kanale waardeur finansiele insluiting hierdie aanwysers positief kan beinvloed, beklemtoon. Om te verstaan hoe finansiële insluiting belangrike verbruikerwelvaart-aanwysers kan beinvloed, is die empiriese studie in hierdie tesis in vier dele gestruktureer, elk waarvan uiteengesit is in ’n tesis-hoofstuk. Daarom verduidelik Hoofstuk 2 hoe die eerste deel van die studie die FinScope 2015 Suid-Afrikaanse verbruikersopname aangewend het om ’n omvattende indeks te bereken van kwaliteit finansiele insluiting uit ’n vraagkant-perspektief met die gebruik van ’n polichoriese hoofkomponent-analise. Met gebruik van hierdie indeks is ’n heteroskedasties-konsekwente gewone kleinste kwadrate regressie bereken om die demografiese bepalers van finansiele insluiting te ondersoek. Die resultaat het getoon dat verdieners van hoer inkomste, vroue, mense wat in diens is, die finansieel geletterdes, en opgevoede verbruikers hoer finansiele insluiting ervaar. Bank-afstand en ouderdom was egter nie bepalers van verbruikers se finansiele insluiting nie. Hierdie resultate dui dus aan dat die finansiele insluiting van verbruikers in Suid-Afrika verhoog kan word deur ongelykheid van inkomste te verminder, toegang tot opvoeding te verhoog, finansiele infrastruktuur in landelike gebiede uit te brei, en finansiele geletterdheid-programme uit te brei. Met die gebruik van die kwaliteit finansiele insluitingsindeks, die ontwikkeling waarvan in Hoofstuk 2 van die tesis uiteengesit word, het die tweede deel van die studie ondersoek hoe kwaliteit finansiele insluiting verbruikers op verskeie vlakke van finansiele kwesbaarheid geraak het. Hierdie fokus op finansiele kwesbaarheid, wat uiteengesit is in Hoofstuk 3, was pertinent omdat die hedoniese siening van subjektiewe welstand aanneem dat laer finansiele kwesbaarheid bydra tot hoer subjektiewe welstand. Om die ondersoek uit te voer is ’n omvattende kwesbaarheid-indeks bereken met gebruik van ’n polichoriese hoofkomponentanalise. Daarna, met gebruik van die FinScope 2015 opname-data, is die impak van kwaliteit finansiele insluiting op verbruikers op verskillende vlakke van finansiele kwesbaarheid ondersoek deur die gebruik van kwantiele regressie-analise. Die resultate het aangedui dat slegs die top 20% van finansieel-ingeslote verbruikers ’n aansienlik laer kwesbaarheid gehad het en dat meer kwesbare verbruikers minder gebaat het uit finansiele insluiting as minder kwesbares. Die resultaat dui dus aan dat bestuurders van finansiele instellings ’n voetsoolvlak-benadering moet gebruik in die ontwerp van kwaliteit finansiele produkte wat die finansiele kwesbaarheid van alle verbruikers kan verminder. Die resultate het ook aangetoon dat vroue, meer opgevoede individue, ryker verbruikers, en die finansieel geletterdes minder kwesbaar was in vergelyking met ander demografiese kategoriee. Daarom kan beleide wat poog om inkomste-ongelykheid te verminder, om ongelykheid in toegang tot opvoeding te versag en finansiele opvoeding te verhoog, help om verbruikers se finansiele kwesbaarheid te verminder. Die derde deel van die studie, wat uiteengesit is in Hoofstuk 4 van die tesis, het die FinScope opname van Suid-Afrika gebruik om die impak van finansiele insluiting op finansiele veerkragtigheid teen die COVID-19 skok te ondersoek deur gebruik te maak van buur-passing en kern-passing. Die resultate dui aan dat informele spaargeld, krediet en versekering gelei het tot laer verbruik na die COVID-19-geinduseerde inkomste-skok. Daar was egter geen statisties betekenisvolle afname in verbruik na die COVID-19 geinduseerde skok onder verbruikers wat formele spaargeld, krediet en versekering gebruik het nie. Verdere analise het aan die lig gebring dat verbruikers met skuld wat informele spaargeld, krediet en versekering gebruik het, nie basiese lewenskoste kon behartig na die COVID-19-geinduseerde inkomste-skok nie, anders as skuld-vrye verbruikers. Daarom moet beleidmakers in Suid-Afrika, afgesien van bevordering van die gebruik van formele finansiele produkte, ook finansiele insluitingprogramme komplementeer met finansiele opvoeding wat fokus op skuld-bestuur, om finansiele veerkragtigheid teen toekomstige nasionale ekonomiese skokke te bou. Met behulp van ’n gedeeltelike kleinste kwadrate model het die vierde deel van die studie, wat in Hoofstuk 5 van die tesis uiteengesit word, ondersoek of finansiele insluiting bate-houding verhoog het, en dus, op sy beurt, die subjektiewe welstand van verbruikers. Bate-versameling is gemeet met ’n bate-indeks wat bestaan het uit materiele besittings en bereken met gebruik van meervoudige korrespondensie-analise, terwyl subjektiewe welstand verteenwoordig is deur lewensbevrediging. Die resultate het aan die lig gebring dat formele spaargeld, krediet en versekering ’n positiewe direkte en indirekte impak gehad het op subjektiewe welstand via bate-houding. Daar was egter ’n mededingende bemiddeling van bate-houding in die verhouding tussen informele versekering, spaargeld en subjektiewe welstand. Daarom moet beleidmakers batebou-programme ondersteun en inisieer wat die gebruik van formele krediet, spaargeld en versekering bevorder. Dit is belangrik omdat verbruikers se subjektiewe welstand, wat geassosieer word met hoer produktiwiteit en innovering, uiteindelik bydra tot die ekonomiese groei van ’n land. af_ZA
dc.description.versionDoctorate
dc.format.extentxix, 243 pages : illustrations
dc.identifier.urihttps://scholar.sun.ac.za/handle/10019.1/128687
dc.language.isoen_ZAen_ZA
dc.publisherStellenbosch : Stellenbosch University
dc.rights.holderStellenbosch University
dc.subject.lcshFinancial services industry -- South Africaen_ZA
dc.subject.lcshFinancial crises -- South Africaen_ZA
dc.subject.lcshFinancial literacy -- South Africaen_ZA
dc.subject.nameUCTD
dc.titleQuality financial inclusion, financial vulnerability, and subjective well-being : evidence from South Africaen_ZA
dc.typeThesisen_ZA
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