Determinants of Youth Financial Inclusion and Their Willingness to Become Entrepreneurs in Tanzania

ABSTRACT: Over the last decade or so, Tanzania's economy has registered a significant growth in the rate of financial inclusion. The level of financial exclusion has consistently declined from 55% to 28% between 2009 and 2017 respectively. Moreover, the percentage of the adult population using formal financial services has almost quadrupled between 2009 and 2017. However, available statistics also illustrate that the participation of youth population in the formal banking, insurance, credit and savings products and services remain abysmally low. Furthermore, less than 50 percent of youth borrow from formal financial institutions. Indeed, lack of access to finance is frequently singled out as the major obstacle among youth to engage in entrepreneurial activities. Although much has been done to address financial inclusion, relatively little is known about the determinants of youth financial inclusion as well as the impact of financial inclusion on youth's willingness to engage in entrepreneurship in Tanzania. This study uses World Bank Financial Inclusion Index, (2018) to examine both the determinants of financial inclusion and the effects of financial inclusion on youth willingness to engage in entrepreneurial activities in Tanzania. In doing so, we employ propensity scores matching (PSM) and the treatment effects models. Financial inclusion is measured by using three indicators namely; "formal account", "formal savings" and "formal credit". The results from the logit PSM regression indicate that being employed increases the likelihood of having a current account or a savings account in a formal financial institution amongst the young people. In the case of formal account and formal saving, attaining a secondary education level increases the probability of having a formal account and a formal saving account relative to those with primary education. The estimated results from the Average Treatment Effect, whose computation is built on the propensity scores and the kernel matching algorithm show that having a formal current account, formal saving account and access to formal credit services positively affect the willingness of youths to engage into entrepreneurship. The policy implication is that government policy that enhances expansion of credit to youth remains paramount as a panacea to engage youth in entrepreneurial activities.