Financial Regulations,Financial Literacy,and Financial Inclusion: Insights from Kenya

This paper examines the relationship between financial regulation and financial inclusion in Kenya. Employing Probit regression on cross-sectional household level survey data and fixed effect regression on banks panel data, we find that: (i) agency banking regulations and financial literacy could improve formal financial access, and (ii) know-your-customers rules and capital and liquidity macro-prudential regulations could harm financial inclusion. Results are robust to alternative specifications. Given our findings, Kenya should boost financial literacy efforts, relax customer identification requirements in specific instances where they may jeopardize financial inclusion efforts, and stabilize macroeconomic environment to mitigate unintended adverse effects of macro-prudential regulations.     

Foreign exchange risk pricing and equity market segmentation in Africa

This work is the first to investigate simultaneously the occurrence of unconditional currency risk pricing and equity market segmentation in Africa’s major stock markets. The multi-factor asset pricing theory provides the theoretical framework for our model. We find strong evidence suggesting that Africa’s equity markets are partially segmented. However, we find insufficient evidence to reject the hypothesis that foreign exchange risk is not unconditionally priced in Africa’s stock markets. This result is robust to alternative foreign exchange rate-adjusted return measures. These findings suggest that international investors can diversify into Africa’s equity markets without worrying about unconditional risks associated with foreign exchange rate fluctuations.