The rapid expansion of financial services in Kenya has had a little impact in improving the lives of Kenyans living in poverty, a survey by the Financial Sector Deepening Trust (FSD Kenya) reveals.

FSD Kenya was established to support the development of financial markets in Kenya as a means to stimulate wealth creation and reduce poverty. Formed in 2005, FSD has played a significant role in facilitating financial inclusion, with one of their goals being giving low-income earners more access to financial products.

However, the donor-funded agency says there is little evidence showing that Kenya's growing financial inclusivity is leading to a decline in poverty. This goes against the opinions of several industry experts, who have in the past said that increased financial access has helped to lower poverty levels in the country.

The ten-year study looked at data from from 2005 to 2015, and the financial sector has recorded a significant increase in the number of people accessing financial services.

<align='center'>2016 FinAccess Household Survey

The proportion excluded from formal financial services fell by more than half.

In 2015 for instance, two thirds of the adult population had access to financial services compared with one quarter in 2005 when FSD Kenya was launched. This amounts to eight million more people gaining access to financial services, meaning that a more diverse population now has access to financial services, especially through banks and mobile based money transfer services such as M-Pesa.

Key changes such as the growth of mobile money and the spread of deposit-taking microfinance institutions, have greatly boosted access to formal financial services, expanding the reach of banks to those who would otherwise lack access to their services over the past decade. These changes have brought more profits and new innovations to the industry, with banks doubling their sales and tripling their profits during the period under survey.

The number of people with bank accounts has increased to more than 6 million and banks return on capital and assets have also grown. Average return on assets for instance has increased from 3.04 per cent to 4.5 per cent.

Why isn't financial inclusion driving down poverty?

The biggest beneficiaries in the financial developments over a decade ago have been the customers groups in the middle and lower middle class, not the poor.

Financial developments have greatly enhanced specific sectors, mostly in energy, health and education improving on the performance of their economy as a whole. While the poor have been touched by the overall surge in economic growth, the main customer groups that have enjoyed most benefits are those above the poverty line, and this is because their choices and spending ability have been expanded.

The rapid expansion of financial services therefore is bypassing the poor and instead helping the middle and lower-middle income groups by helping them to manage their financial lives better through extension of services from banks and mobile money.

Savings and Credit Cooperatives (SACCOs) were seen to be an important financial service provider for the poor. FSD identified an estimated 3200 membership-based and not-for-profit organizations and SACCOs, with approximately 1.6 million members.

In an attempt to boost access to financial services, FSD Kenya invested $ 2.3 million to facilitate capacity building in SACCOs from 2006-2010, but this programme was stopped in 2010 when the whole program failed to realize its core role of improving the lives of poor people.

The impact of mobile money and mobile loans on the poor is also likely to be limited according to the survey, with more than 11 million account holders who uses services for a variety of personal and business reasons, the profits are largely drawn from people above the poverty line.

The survey indicates that up to 40 per cent of those who seek credit are refused, majority of these drawn mainly from lower-income groups.

So how can financial expansion reduce poverty in Kenya? Financial inclusion is a noble initiative on its own, but its impact is less clear when it comes to poverty reduction.

One way that inclusion can be used to improve the lives of the poor is through targeted lending to sectors that they are actively engaged in, such as agriculture, which is the main livelihood source for the rural poor. This is then likely to lead to better income-earning opportunities and access to useful goods and services, and the survey identifies this as one way to spread the reach of the financial system to include the poor.

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