The relationship between financial inclusion and agricultural development in Southern Africa Development Community (SADC)

Abstract

An inclusive financial system has been widely recognized by most policy makers around the world and is becoming a priority in policy making globally. An inclusive financial system is one that creates economic opportunities along with ensuring equal access to them. Agriculture, on the other hand, continues to be renowned as an engine for growth in many poor economies and thus the importance of financial inclusion for agricultural development cannot be ignored. This research work sought to examine the relationship between financial inclusion and agricultural development in Southern African Development Community (SADC). The main objective of the study was to establish the relationship between financial inclusion and agricultural development in the SADC region. The study determined the level of financial inclusion in the SADC region by calculating the index of financial inclusion. The index gathers information from the World Bank G20 financial inclusion indicators using methodological inputs from the research works of Sarma (2008). An agricultural development index was also calculated to determine the level of agricultural development in the SADC region using secondary data from the African Development Bank, an open Africa database. To determine the relationship between financial inclusion and agricultural development, secondary data were extracted from the African Development Bank’s open data for Africa database. These data were analyzed using descriptive statistics, correlation and regression analysis. Excel software was used to transform the variables into a format suitable for analysis, after which STATA version 14 was used to provide the basis of analysis and the findings of the study. For the basis of analysis and because of the unavailability of data on agricultural development measured as a single number, the Agricultural Production Index (API) was used as a proxy for agricultural development. A period of ten years was covered, from 2005 to 2014, for all 15 SADC countries and the panel fixed effects regression model was confirmed by the Hausman test as appropriate for the study. The regression analysis established that the usage of financial services (amount of bank loans as a proportion of total deposits) has a statistically significant relationship with agricultural development. The number of bank branches (per 1000 km2) and ATMs (per 100 000 people) have a positive relationship with agricultural development and thus an increase in access to financial services is associated with an increase in agricultural development in the SADC region. Therefore, this study confirmed the hypothesis that agricultural development and financial inclusion are positively related. Hence, high financial inclusion is associated with high agricultural development in the SADC region.