Studies on financial inclusion in Africa

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Financial inclusion has recently been an important concern for policy makers and researchers due to its relevance to the financial system, poverty reduction and the growth of economies. In spite of the enormous policy relevance of financial inclusion, empirical evidence on this nexus suffers many limitations in findings and measurement, particularly the measurement of financial inclusion and financial development. Significantly, the context of Africa where financial exclusion is more pronounced remains relatively less explored in the financial inclusion-financial stability nexus, a void this study intends to fill. Using Africa as a case, this thesis consists of four self–contained chapters with each investigating a critical gap relying on several advanced econometric techniques. In the first essay, we investigate the influence of financial inclusion on financial development in Africa using data from 22 African countries over a 12-year period, from 2007 to 2018. We investigate this relationship using the Generalized Method of Moments (GMM) approach to panel data. We find financial inclusion, measured with the financial inclusion index, to be significant and positively related to financial development, measured with the financial development index. However, employing single measures of financial development as dependent variables, we find financial inclusion to exert an insignificant effect on financial development. In conclusion, using indexes to measure financial inclusion and financial development provide a more comprehensive measure which provides robust findings that can effectively assist policy makers in designing initiatives and strategies. In the second essay, we examine the indirect effect of financial inclusion in the relationship between financial development and income inequality in Africa using the three-stage least squares (3SLS) approach with data that covers a 12-year period, from 2004 to 2015. We find financial development to indirectly exert a negative effect on income inequality in Africa. However, iv financial development eventually reduces income inequality as financial services are extended to the marginalized as the sector further develops. The main conclusion is that, financial inclusion is essential in the achievement of income equality in Africa. The third essay investigates the impact of financial inclusion on stability in the African banking system. We employ the quantile regression approach to examine this relationship with data from 22-African countries over a 12-year period, from 2004 to 2015. We provide comprehensive evidence that greater financial inclusion enhances the stability of the African banking system. Although financial inclusion enhances the stability of banks at all levels of stability, our finding shows that, the impact of financial inclusion on stability is more pronounced in highly stable banking systems. Nonetheless, financial inclusion also enhances the stability of banks in relatively less stable banking systems. We conclude therefore that, with a more inclusive financial sector, banks enjoy greater stability. In the final essay, we investigate the non-linear relationship between financial inclusion and economic growth in Africa, with investment as the mediating/threshold variable. We employ the Hansen’s sample splitting approach to examine this relationship. We provide evidence that, investment does not only significantly influence the relationship between financial inclusion and economic growth, but also, the level of investment in the country is important in determining the sign and magnitude of this effect. Specifically, we find that, below the threshold level of investment, financial inclusion exerts a negative and significant influence on economic growth whereas above the threshold level of investment, financial inclusion affects economic growth positively and significantly. We conclude that, for financial inclusion to affect economic growth positively, the level of investment in the country must be equal to or exceed a threshold level of investment identified in this study.
A thesis submitted in fulfilment of the requirement for the degree Doctor of Philosophy in Finance to the Faculty of Commerce, Law and Management, Wits Business School, University of the Witwatersrand, Johannesburg, 2022
Financial inclusion, Financial development, Bank stability, UCTD