Financial Inclusion Theory

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.2 Theoretical Review
2.2.1 Financial Inclusion Theory
Financial inclusion refers to the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular, at an affordable cost, in a fair and transparent manner, by mainstream institutional players. An inclusive financial sector is that which provides ‘access’ to credit for all ‘bankable’ people and firms, to insurance for all insurable people and firms, to savings and payment services for everyone, United Nations (2006).

Inclusive finance does not require that everyone who is eligible use each of the services, but they should be able to choose them if
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Majority of people carrying out business in the SME market in Roysambu Constituency and Kenya as whole, are not quite well informed in terms of education and skills. According to King and McGrath (2002), those with more education and training are more likely to be successful in the sector. The literacy level has also been reflected in their ability to carry out managerial routines. An essential part of their routine includes making decisions on sound financial investment and management. This affects the decision on the external funding of his enterprise. The low literacy levels of the SME’s owners are evidenced by the declining levels of the primary and secondary school enrollment of students in Kenya. This makes an entrance to the ‘the juakali sector ‘increasingly important the last resort for the disadvantaged individuals with relatively low levels of education.
According to the site,, it’s observed that an entrepreneur’s level of education is directly correlated with his ability to make financial decisions of his business. Kenya’s declining level of education has, thus had negative impact on entrepreneur’s ability awareness on how and where to get loans to improve their
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It’s important that financing be as efficient as possible, Stutely (2003). Stutely, argues that the borrower should be able to put the cost of all financing on the same basis, comparing them and come up with the one that gives the lowest cost financing option. Banks have often been criticized for having high interest rates charged on loans. But sometimes, there are factors beyond their control. For example the amount of interest payable on loans depend on interest rates charged, which is driven by the base lending rate of interest set by the Central Bank of Kenya. The amount of interest rate charged is often intertwined with the security of the loan, and the use for which it’s to be used, or the nature of the business. That is the more secure loans are charged low interest rates due to, their low risks involved, Management (July, 2008). This leads the SME’s to the micro finance institutions, who lend unsustainable interests short term
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