Financial Inclusion and Energy Poverty in Rural Tanzania

Despite global efforts to propel clean fuels, rural households in most developing countries rely heavily on traditional solid fuels, perpetuating energy poverty and hindering sustainable rural development. Using two waves of longitudinal data from the Tanzania National Panel Survey spanning between 2014 and 2022, we examine the effects of financial inclusion on energy poverty in rural Tanzania. We employ multidimensional constructs of financial inclusion and energy poverty. We benchmark our results using a panel fixed effect estimator and address the potential endogeneity of financial inclusion in a standard Two-Stage Least-Squares estimation. Our main finding indicates that financial inclusion decreases energy poverty. This finding is consistent across different quasi-experimental approaches and alternative financial inclusion and energy poverty conceptualisation. The effect of financial inclusion on energy poverty is more substantial for rural mainland residents than rural Zanzibar. Relatively, access to credit has the biggest effect in reducing energy poverty compared to the other dimensions of financial inclusion. Finally, we find the emergence of non-farm businesses as an important channel through which financial inclusion operates to reduce energy poverty. We recommend policies that promote entrepreneurship in rural communities with high energy poverty to consolidate the gains of financial inclusion for sustainable rural development.