Financial Inclusion and Household Resilience to Shocks in Kenya

Abstract

Despite Kenya's objective of achieving a formal financial inclusion rate of 83.7 percent by 2021, national survey data show that households remain vulnerable to economic shocks. This study looked at how the financial inclusion dimensions of access, usage, and product quality affected household resilience to shocks in Kenya. The Random Utility Model, Rational Choice Theory, and Theory of Resilience served as the foundation for this research. A cross-sectional research design was used, with secondary data from the 2021 FinAccess Household Survey covering 22,024 households across 47 counties. A composite index was used to assess household resilience, taking into account income stability, savings capacity, and credit availability. Data analysis employed Fractional Regression Modelling via Quasi-Maximum Likelihood Estimation as the primary approach, with Ordinary Least Squares regression providing robustness checks. Diagnostic tests confirmed model validity, and all statistical inference was evaluated at the 0.05 significance level. The findings indicate that access to financial services does not have a statistically significant effect on household resilience, indicating that financial availability alone is insufficient to strengthen households’ capacity to withstand shocks. Usage of financial services exhibited a positive and statistically significant relationship with resilience (β = 0.274). Financial product quality demonstrated a stronger positive and statistically significant effect (β = 0.515). This highlights the importance of financial affordability and suitability in resilience building. Mobile phone ownership, household income, female-headed households, urban location, and education all had significant positive associations with resilience, whereas age of the household head had a negative coefficient. The study concludes that financial inclusion strengthens household resilience primarily through active usage and product quality, rather than simply increasing access. Policy interventions should prioritize meaningful usage promotion, consumer protection reinforcement, financial literacy enhancement, and service quality improvement. Keywords: Financial Inclusion, Household Resilience, Economic Shocks, Access to Financial Services, Financial Product Quality