Formal and informal financial inclusion and its impact on health: empirical evidence from South Africa

The ability to secure high quality healthcare and access at an affordable cost for the entire population is the principal health objective of many countries on the path to the attainment of Sustainable Development Goals (SDGs). This study addresses the critical, yet understudied, impact of formal and informal financial inclusion on health, directly supporting the objectives of SDG 3 (Good Health and Well-being). The study employs and modifies South Africa’s National Income Dynamic Study microdata by combining all five waves to create panel data. A random effects ordered probit model is used since it is possibly the best approach for panel data on self-rated health outcomes as it takes into consideration the existence of an additional normally distributed cross-section error term which captures individual specific effects. Results for formal financial inclusion dummy variable are statistically significant and positive, suggesting that individuals with access to formal financial services such as savings and credit have a higher probability of reporting better health outcomes. However, results for informal financial inclusion dummy variable are statistically significant and negative, implying that higher reliance on informal finance like stokvel savings and mashonisa credit shifts individuals toward the lower outcomes of health. Given the mixed outcomes of the impact of formal and informal financial inclusion on health, this study recommends policies that could integrate informal savings and credit into the formal digital economy and address structural barriers that limit the effectiveness and efficiency of the financial system.