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The Contribution of Formal and Non-formal Finance to Household Welfare: Evidence from South Africa

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  • Lwanga Elizabeth Nanziri

Abstract

Access to finance has been identified as a tool in the fight against poverty and inequality. While efforts have been made to ensure that affordable formal financial services are accessible, the use of alternative non-formal mechanisms persists in many developing economies and thus compromises the potential gains from financial inclusion. Using a dataset from the FinScope surveys on South Africa, this paper investigates whether welfare outcomes of users of formal financial services and users of alternative non-formal financial services differ. Results, based on panel and treatment effect techniques show that the use of formal and semi-formal financial services leads to positive and significant welfare outcomes which are measured using an asset and well-being index. While these positive outcomes persist beyond the immediate period following the use of formal financial services, there is no such effect when one uses non-formal financial services. An attempt is made to contextualise these results for financial inclusion.

Suggested Citation

  • Lwanga Elizabeth Nanziri, 2018. "The Contribution of Formal and Non-formal Finance to Household Welfare: Evidence from South Africa," CSAE Working Paper Series 2018-06, Centre for the Study of African Economies, University of Oxford.
    • Handle: RePEc:csa:wpaper:2018-06
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    Cited by:

    1. Laston Petro Manja & Isatou A. Badjie, 2022. "The Welfare Effects of Formal and Informal Financial Access in the Gambia: A Comparative Assessment," SAGE Open, , vol. 12(1), pages 21582440221, March.

    More about this item

    Keywords

    Financial Inclusion; Recentered Influence Function; Social Grants; South Africa; Welfare;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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