CHAPTER ONE INTRODUCTION

• Background of the study

Several studies have acknowledged the contribution of financial sector development towards economic progress of countries (eg. Kaburu, 2012; Khan et.al, 2006; Amaral & Quintin, 2006). In spite of plethora of evidence endorsing the importance of financial sector development which consist capital markets and the banking sector in the less advanced countries, usage of financial services is skewed towards the rich individuals and those who are already better off, neglecting the poor and those who in the remote areas (see Classens, 2004; Singh & Tandon, 2012; Bold, 2011; Martinez & Mckay, 2011). Over 2.5 billion were not included in the banking sector (Kenya Bankers Association, 2012). Mpuga (2004) reported that most of the financial institutions in Africa can only be found in the cities. According to Akpandjar et.al (2013), the highly concentration of financial institutions in urban areas depicts why majority of people are excluded from banking in Ghana.

Bawumia et.al (2008) also reported that most people are excluded from the formal banking sector in Ghana. More than 35% of banks in Ghana largely have their branches in Greater-Accra Region although the region’s population was not more than 13% of population in Ghana (ISSER, 2008). According to Dercon et.al (2014, p.3), financial inclusion (FI) “can enhance household ability to gather resources and increase their ability to generate more income as well as enhancing their ability to deal with risk”. Financial inclusion refers to individuals, households that can access formal financial products. According to United Nation (2006, p.14), inclusive financial system is

“ensuring that all bankable individuals and firms get access to financial services such as credit and savings”. Utilization of financial services consolidates activities like insurance, pensions and security market, deposits accounts and many more. The term “financial services” is very wide as it combines activities of insurance and banking sector.

FI has increasingly gained attention among researchers, academia and other stakeholders (see Chikalipah, 2017; Ravalion, 2014; World Bank, 2014). The increasingly gained attention demonstrates a better comprehension on the importance of FI to economic progress a country. Access to formal financial services contributes in eradicating severe poverty, supporting inclusive and sustainable development and boosting shared prosperity (World Bank, 2014). There is enough literature that demonstrates that the poor gains a lot from banking activities such as savings, insurance and payments. Without FI, people would need to rely upon their little savings (e.g World Bank, 2014; Dermiguc-Kunt et.al, 2014; Nimal, 2007). Firms would need to rely upon their little profits to grow their business (Nimal, 2007). Most studies have explored the contribution of FI to economic development (Dermiguc-Kunt et.al, 2014; Ravalion, 2014). There are likewise some studies that have clarified how FI and absence of access to finance can result in poverty (Barnejee & Newman, 1993).

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