Access to digital banking services and household welfare among youth-led micro and small enterprise owners in Bungoma County, Kenya: The moderating role of education

Abstract

Digital banking services have become an important component of financial inclusion, particularly for micro and small enterprise (MSE) owners who require accessible and convenient mechanisms for managing business and household transactions. Drawing on Human Capital Theory, Financial Intermediation Theory, and Solow Growth Theory, this study examined the association between access to digital banking services and household welfare among youth-led MSE owners in Bungoma County, Kenya, and assessed whether education moderates this relationship. Human Capital Theory provides the basis for understanding the role of education in enhancing individuals’ knowledge, skills, and ability to effectively utilise financial services, while Financial Intermediation Theory explains how financial services facilitate the mobilisation and allocation of financial resources. Solow Growth Theory provides a broader perspective on how improvements in productive capabilities and technology can contribute to economic and welfare outcomes. However, access to digital banking services may not be associated with similar welfare outcomes across users because the ability to understand and effectively utilise digital banking products may vary with individual capabilities. A quantitative cross-sectional research design was employed using primary data from 400 youth-led MSE owners aged 18–35 years. Household welfare was operationalised as a binary outcome derived from a composite welfare index, while access to digital banking services was measured using indicators of accessibility, convenience, affordability, reliability, and usability. Probit regression was used to estimate the association between access to digital banking services and household welfare, with an interaction term between digital banking services and education introduced to test the moderating relationship. The baseline model produced a Pseudo R² of 0.218. Access to digital banking services was positively and statistically significantly associated with household welfare (β = 0.384, p < 0.001). In the moderated model, the digital banking services coefficient remained positive and statistically significant (β = 0.309, p = 0.002), while the digital banking services × education interaction was also positive and statistically significant (β = 0.182, p = 0.011). The Pseudo R² increased from 0.218 to 0.261 following inclusion of the interaction term. The average marginal effect of digital banking services was 0.152 (p < 0.001), indicating a positive association between higher access to digital banking services and the predicted probability of higher household welfare. The findings indicate that education conditions the relationship between access to digital banking services and household welfare. The study highlights the importance of complementing the expansion of digital banking services with financial capability and digital skills initiatives targeting young entrepreneurs.