Assessing the Effects of Financial Inclusion on the Financial Performance of Non-Banking Institutions in Zambia

This study assessed the effects of financial inclusion on the financial performance of Non-Banking Financial Institutions (NBFIs) in Zambia, focusing on the impact of Bank Account Penetration (BAP), Utilization of Financial Products (UFP), and Loan Accessibility (LA) on Return on Equity (ROE). The study tested three hypotheses: (1) BAP positively affected ROE, (2) UFP enhanced ROE, and (3) LA improved ROE, while considering macroeconomic factors like GDP per Capita (GDPC) and institutional factors such as Total Assets (TA). Using a quantitative approach, the study employed regression analysis on monthly secondary data from 36 registered NBFIs over the period 2010-2023, yielding 168 observations. The results revealed that UFP had a significant positive relationship with ROE (p = 0.003), indicating that higher product utilization boosted profitability. In contrast, LA showed a significant negative impact on ROE (p = 0.000), suggesting that increased loan accessibility introduced higher credit risk and negatively affected profitability. BAP, however, had an insignificant effect though positive on ROE (p = 0.254), highlighting that merely increasing the number of bank accounts did not improve financial performance unless coupled with active engagement. The study concluded that while financial inclusion initiatives like UFP and economic growth enhanced NBFI performance, unregulated loan expansion might have harmed profitability. Policymakers were encouraged to prioritize financial product usage, financial literacy, and robust credit risk management. NBFIs were advised to focus on product innovation and effective risk management to ensure long-term sustainability. The study contributed valuable insights to the literature on financial inclusion and offered practical recommendations for improving NBFI performance in Zambia.