Financial Inclusion and the Welfare of Smallholder Farmers in Songwe Region, Tanzania

Abstract

This study examined how financial inclusion is associated with the welfare of smallholder farmers in Songwe Region, Tanzania, whether reported farm income accounts for the association, and if differs by gender, education and asset wealth. A cross-sectional survey of 420 farmers in nine wards of four districts was carried out in May and June 2025. A Composite Financial Inclusion Index (CFII) and a Welfare Index (food security, housing, electricity, living standard) were built by principal component analysis. Estimation used ordinary least squares with robust standard errors, bootstrap mediation and interaction models. A higher CFII was associated with higher welfare after controlling for personal and household characteristics, asset wealth and district (b = .096, p < .001), in all 14 specifications examined. Reported farm income did not mediate the association (indirect effect .003, 95% CI [−.004, .011]). It was stronger among farmers with no formal education and in the lowest asset tercile, and, though not significantly, among women (p = .067). Scores were bunched near the maximum among better-off farmers, and the difference by asset wealth was not significant when asset items that overlap with the welfare indicators were left out. Cross-sectional associations cannot show cause. Income was recorded in three bands, and the welfare index is only moderately coherent (Kaiser–Meyer–Olkin = .58). Programmes may do most for the least educated and least wealthy farmers and should track food security, housing and living standards, not income alone. Evaluations should test this. Generally, financial inclusion is positively associated with smallholder welfare. The evidence shows association, not effect, and does not support an income pathway