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Citation

Changwony F, Koske N & Tuwey J The effect of decentralisation on household financial inclusion, savings, and borrowing: A quasi-experiment evidence from Kenya. Regional Science and Urban Economics. https://doi.org/10.2139/ssrn.5057045

Abstract
This paper examines the impact of decentralisation on three household financial outcomes: financial inclusion, savings, and borrowing. Using a quasi-experiment, we analyse the effect of a decentralisation reform that introduced a new governance structure, a criterion for sharing total government revenue, and a special equalization fund ring-fenced for historically marginalised rural regions in Kenya. We found that households in marginalised regions experienced a 23% increase in their total savings and a 60% increase in borrowing compared to their counterparts in privileged regions. The reform had no effect on financial inclusion. However, quantile regressions revealed significant differences in financial inclusion and savings distribution but not in borrowing distribution. The reform had a greater impact on households at the top of the financial inclusion and savings distribution, but it uniformly affected all households across the borrowing distribution. Our research contributes to policy debates regarding the role and effectiveness of decentralisation in national resource redistribution.

Keywords
Decentralisation, household finance, financial inclusion, savings, borrowing, marginalisation