Testing Bidirectional Relationships between Saving Participation and Financial Inclusion in East Africa: Evidence from Propensity Score Matching
Using Propensity Score Matching on World Bank Global Findex 2021 data, this study reveals that the relationship between saving participation and financial inclusion in East Africa is predominantly unidirectional and country-specific, with significant effects observed only in Uganda (borrowing driving saving), Kenya (saving driving borrowing and internet access, while digital payments drive saving), and Tanzania (no significant post-matching relationships), thereby challenging the assumption of generalized bidirectional causality.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
In the bustling economies of East Africa, a quiet transformation is underway. More people are opening bank accounts, borrowing money, and using mobile phones to send payments. At the same time, experts have long hoped that these new tools would encourage people to save more of their money, building a safety net for the future. The logic seemed simple: if you have access to a bank or a digital wallet, you are more likely to put money aside. Conversely, if you are already a saver, you might be more likely to seek out these financial services. It is a cycle of mutual reinforcement that could lift entire communities out of poverty. But in the real world, people are not random. Those who have money to save are often the same people who have jobs, education, and the means to borrow. This makes it difficult to know if financial tools actually cause people to save, or if they simply attract people who were already planning to save anyway.
A team of researchers from Makerere University set out to untangle this knot in Uganda, Kenya, and Tanzania. They wanted to see if the relationship between saving and financial inclusion was truly a two-way street, or if the traffic flowed in only one direction. To do this, they looked at micro-data from the World Bank Global Findex 2021 and used a careful statistical method to compare people who were very similar in every way—same age, same education, same income—except for whether they used a specific financial service. By matching these individuals like twins, the researchers could isolate the true effect of the service itself, stripping away the influence of background factors that usually cloud the picture.
The results revealed a story that is far more complex and country-specific than the simple cycle of mutual reinforcement many had hoped for. In Uganda, the researchers found a clear, one-way path: borrowing money significantly increased the likelihood that a person would save. Specifically, for those who borrowed, the chance of saving jumped by 41 percentage points compared to similar people who did not borrow. However, the reverse was not true; saving did not make people more likely to borrow. In this context, access to credit appears to act as a lifeline that allows people to manage their finances without draining their savings, or perhaps it serves as an entry point that encourages them to start saving.
Kenya presented a different, yet equally intricate picture. Here, the connections were strong but did not loop back on themselves. The study found that using digital payments, such as mobile money transfers, was a powerful gateway to saving. People who used these digital tools were 51.8 percentage points more likely to save than similar non-users. Yet, saving did not lead to more digital payment use. Instead, the act of saving seemed to push people in other directions: savers were 26.4 percentage points more likely to borrow and 35.2 percentage points more likely to have internet access. In Kenya, digital payments seem to open the door to saving, while saving itself seems to open the door to borrowing and internet use. The relationship is interconnected, but it is not a reciprocal loop where A causes B and B immediately causes A.
In Tanzania, the story was even more revealing. Before the researchers applied their careful matching method, the data looked like a strong connection between financial services and saving. But once they compared truly similar individuals, those connections vanished. None of the financial variables—borrowing, account ownership, internet access, or digital payments—had a statistically significant effect on saving. This suggests that in Tanzania, the people who use financial services and save money are simply different from those who do not in ways that go beyond the services themselves. They may have higher incomes or different life circumstances that drive both behaviors. The financial tools themselves did not independently cause the increase in saving.
Perhaps the most surprising finding across all three countries was that simply owning a bank account did not lead to more saving in any of them. Whether in Uganda, Kenya, or Tanzania, having an account was not enough to change behavior once other factors were accounted for. This highlights a crucial distinction between having access to a tool and actually using it to build wealth. The researchers concluded that the idea of a universal, self-reinforcing cycle between financial inclusion and saving is a myth. Instead, the relationship depends entirely on the specific country and the specific financial channel. In some places, credit leads to saving; in others, digital payments lead to saving; and in some, the link is broken entirely.
For policymakers, these findings offer a clear warning against one-size-fits-all solutions. Expanding access to financial services is not a magic switch that will automatically generate savings across the region. In Uganda, linking credit products with saving opportunities might be the most effective strategy. In Kenya, focusing on digital payment platforms could be the key to unlocking savings. In Tanzania, the priority may need to shift toward improving the broader economic conditions that allow people to save in the first place. The path to financial security is not a single road, but a collection of distinct, local routes that require specific, targeted maps.
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