Essays on Financial Inclusion and Women Empowerment: The African Perspective

Abstract

The literature suggest that finance plays a central role in promoting inclusive growth. This means that equal access to affordable finance to all economic agents, which is referred to as financial inclusion, plays a crucial role in promoting economic growth, poverty reduction, and income inequality reduction in an economy. Despite the importance of financial inclusion, the statistics show that there are more than 1.7 billion financially excluded adults globally. In Africa, it is estimated that less than one in every four (4) adults own an account in the formal financial service sector, which means that the level of financial inclusion in Africa is low. The importance of financial inclusion to growth and development has, thus, resulted in development agencies (like the World Bank and the IMF) and governments implementing policy interventions to improve the level of financial inclusion in countries across the globe. This makes measuring the level of financial inclusion in an economy critical to a country. Infact, the World Bank roadmap to universal financial access highlights how to move people from being unserved (financially excluded) to being served (financially included). Per roadmap, the availability of affordable basic financial services such as payments, credit, savings, insurance, and remittances to adults can help to improve the levels of financial inclusion in an economy. Any comprehensive financial inclusion measure must, therefore, incorporate these services. Financial inclusion is suggested as multidimensional concept, hence, it is best measured by an index. Previous studies that attempted to measure financial inclusion, however, used single indicators, which failed to capture the multidimensional nature of financial inclusion. The other studies created a financial inclusion index using only bank data, thus, failing to adequately capture the other critical financial industry services like insurance and remittance. To improve on previous iii studies and add to the existing literature, this study includes insurance in constructing a financial inclusion index (FII) for 14 sampled African countries during the study period (2000 to 2021). The results of the study show that, apart from Sierra Leone that recorded an average FII of 0.30, the other 13 sampled countries had average FII below 0.30. Per the Sarma (2008; 2012) classification, therefore, only Sierra Leone can be classified as a medium financial inclusion country whilst the 13 other sampled countries fall within the low financial inclusion category. The results is in line with studies that found that countries in Africa generally have low levels of financial inclusion. The study also investigates the factors that drive financial inclusion in Africa and finds that inflation and urbanisation increase the level of financial inclusion whilst dependency ratio, and gross national income per capita dampen the level of financial inclusion. Further, the study finds that domestic credit to the private sector, education, money supply are insignificant in determining the level of financial inclusion in Africa during the study period. The literature suggest a possible threshold effect of financial inclusion on economic growth and income inequality. The second essay of this study, therefore, investigates the threshold effect of financial inclusion on economic growth and income inequality in Africa. First, the study finds when FII is less than 0.37 (that is FII < 0.37), the coefficient is insignificantly positive, which suggests that economic growth is insensitive to FII that falls below this region. However, when FII is equal to or greater than 0.37, the coefficient is significantly positive, which suggests that economic growth improves when FII increases beyond 0.35 score. Second, the study finds FII reduces income inequality faster when it is above a threshold value of 0.05 in Africa. Thus, given the fact the all the countries recorded FII beyond 0.05, the study suggests that financial inclusion positively impacted the sampled countries in during the study period. iv The literature suggest that despite the importance of financial inclusion to inclusive growth, women, who form the majority of Africa’s population, are more disproportionately financially excluded compared to men in Africa. Further, the literature suggest that access to finance has the ability to improve women empowerment. The third essay, therefore, focused on examining the impact of financial inclusion on women empowerment in Africa in both the short-run and long- run. To achieve this, the study uses the gender inequality index (as proxy for women empowerment) as dependent variable. The comprehensive FII created in objective one (1) of this study is used as independent variable of interest as well as other independent variables. The study employs panel ARDL to estimate the long-run and short-run relationships between financial inclusion and women empowerment in Africa and finds that financial inclusion improves women empowerment in short run but decreases the level of women empowerment in the long run in Sub- Saharan Africa. Overall, the study finds evidence to support the argument that financial inclusion is central to promoting economic growth, reducing income inequality, and improving women empowerment (in the short-run) in Africa. The study, therefore, recommends the following. First, African governments should implement policies and programmes that create a steady macroeconomic environments and stable political climate to promote financial inclusion. Second, regulators of the financial sectors must create confidence in the financial sector and develop/offer the right products and services to encourage the patronage and usage of the formal financial sector by all economic agents. Last, financial literacy campaigns must be intensified to educate all the segments of the population that formal financial sector is for all economic agents, not just for men, the rich, educated and urban dwellers.