Digital Financial Inclusion and Economic Growth: Evidence from Sub-Saharan Africa (2011-2017)

Abstract

1. Introduction Digital financial inclusion for the poor is becoming a reality. While traditional microfinance and banks remain important, the potential of using new technology-based platforms to serve the poor is huge. In particular, digital finance network coverage and the use of a variety of indirect channels (e.g., agents) reduce the costs compared to more customary full service branches owned by banks. Cash is the main barrier to financial inclusion. In as much as poor people rely on cash or barter, it remains too costly for financial institutions to serve them. Once the poor have access to cost-effective digital means of payments, they exit this trap and could in principle be profitably supplied by a range of financial institutions. Providers can offer not only mobile money, but also savings, credit, insurance, and other digital financial products to the poor at low cost. Digital Financial inclusion is usually defined as the percentage of individuals and firms that have access to or use financial services (World Bank, 2014). Burkett and Sheehan (2009) define financial exclusion as: A situation where a person, group or organization lacks or is deprived of access to affordable, appropriate and fair financial products and services, with the result that their capability to participate fully in social and economic activities is reduced, financial adversity is increased, and poverty (measured by income, debt and assets) is exacerbated. Digital Financial inclusion, therefore, is beyond access to finance, usage and quality are also important. Many people may have access to digitalfinancial services at affordable prices, but decide not to use certain financial services for reasons such as religion or culture. Statistics show disparities due to factors such as income, age and gender (Demirgüc-Kunt et al, 2015). Others may lack access due to exorbitant costs of the services, unavailability of services because of regulatory barriers, or a variety of other market and cultural factors. Fuhrmann, (2017) postulated that the business of banks involves taking deposits and using the same deposits to make loans. It could be complicated, but this is the basic model used in banking. In the past banks in Asia have been accused of not reaching out in areas where the transaction or deposit size is very low. In places with low deposits, the volumes are usually low, and the costs of serving are high. The banks did not see any sense to open up branches in areas with low volumes and the high cost of operation. The revolution of information technology (IT) has changed every aspect

Digital financial inclusion and economic growth in Sub-Saharan Africa: the role of institutions and governance

“…% points. This is in line with documented empirical literature (Thaddeus et al, 2020). This implies that a growth in the economy would cause people to buy digital gadgets and use Internet which increases financial inclusion.…”

“…Literature is replete with studies examining the nexus between digital financial inclusion and economic growth for developing and developed countries (Ahmad et al, 2021;Banna and Alam, 2021;Khera et al, 2021;Shen et al, 2021;Thaddeus et al, 2020), with each study providing insights into the subject matter. Using the fixed effect regression approach, Ahmad et al (2021) have probed into the digital financial inclusion-economic growth nexus and concluded a positive impact of digital financial inclusion on economic growth in China.…”

“…Barriers in traditional financial systems continues to fall (Kooli et al, 2022), leading to an increase in financial inclusion which is also recognised as a key enabler for achieving the 2030 Sustainable Development Goals (Allen et al, 2016). It has been argued that countries with high digital financial inclusion levels are better able to withstand economic growth challenges (Khera et al, 2021;Shen et al, 2021;Thaddeus et al, 2020). Therefore enhancing digital financial inclusion can have significant positive effects on many individuals and organisations in those countries that can be affected by economic downturns.…”

“…Literature is replete with studies examining the relationship between economic growth and digital financial inclusion (Ahmad et al, 2021;Banna et al, 2020;Banna and Alam, 2021;Khera et al, 2021;Shen et al, 2021;Thaddeus et al, 2020). However, there is dearth of studies linking institutions, governance, digital financial inclusion and economic growth.…”

“…The results demonstrate that, with the exception of mobile money penetration, SSA underperformed the world average on all measures of financial inclusion among the six regions. Lower levels of digital financial inclusion are a deterrent to (Ahmad et al, 2021;Banna et al, 2020;Banna and Alam, 2021;Khera et al, 2021;Shen et al, 2021;Thaddeus et al, 2020). Therefore, it is critical to take practical action to increase the reach of formal financial services.…”