Financial Inclusion in a Changing Business Environment: Extent and Determinants among Smallholder Farmers in Songwe Region, Tanzania

Abstract

This study addresses the measurement gap in financial inclusion (FI) research among smallholder farmers by constructing a Composite Financial Inclusion Index (CFII) and examining its determinants in Songwe Region, Tanzania. It tests whether socio-economic characteristics, assets and technology, land tenure, and district are associated with inclusion. Cross-sectional survey data were collected from 420 smallholder farming households in nine wards of four districts (Mbozi, Ileje, Momba, Songwe), with fixed quotas in purposively chosen wards. A two-stage Principal Component Analysis was used to construct the CFII across access, usage, quality, and digital dimensions (38 indicators; Kaiser–Meyer–Olkin .85–.94), and a fractional logit model, checked against ordinary least squares and Tobit estimates and fitted with Huber–White robust standard errors, was used to identify its determinants. The first component explained 89.3% of the variance in the four sub-indices. Financial inclusion was predominantly low (65.5% of farmers), with substantial district disparities (mean CFII: Songwe 0.64, Ileje 0.14). Education and asset wealth were the strongest determinants: secondary education or more was associated with a 0.23-point higher CFII and the highest asset tercile with a 0.20-point higher CFII. Ileje farmers scored 0.21 points below Mbozi farmers, and land ownership was positively associated (0.07). A gender gap of 0.06 points remained after controls but was sensitive to specification. Telephone ownership and farm income band were not significant. The cross-sectional design limits causal inference, particularly for land ownership, and the nine purposively chosen wards limit generalisation; panel data or an instrumental-variable approach would strengthen future work. The findings support geographically targeted infrastructure investment in underserved districts (Ileje, where the access and digital sub-indices were lowest), led by the Bank of Tanzania and mobile network operators, adult education for farmers without secondary schooling, and gender-responsive financial inclusion programming. A validated index of access, usage, quality and digital dimensions shows low and uneven inclusion among the surveyed farmers. Education, asset wealth and living in Ileje matter most, so policy should pair local service provision with education and gender-responsive design.