Financial inclusion and financial sector development in Sub-Saharan Africa: a panel VAR approach

Abstract

Purpose The purpose of this paper is to investigate the dynamic link between financial inclusion and financial sector development (FSD) in Sub-Saharan Africa. Design/methodology/approach This paper employs a panel vector autoregressive framework to examine the dynamic link between financial inclusion and FSD in Sub-Saharan Africa. Findings The findings indicate that there is a reverse causality between FSD and financial inclusion in both the Sub-Saharan Africa countries sample and the full sample. It is evident that financial inclusion is a driver of FSD and vice versa. Practical implications The practical implication of this study is that financial inclusion should not only be pursued as a policy objective but it could also be an outcome variable of FSD and vice versa. This implies that African economies and governments in their effort to enhance financial inclusion, FSD can serve as a policy tool. This means that policies aimed at promoting financial inclusion will not impede FSD because the two are complementary. This suggests that we can achieve financial inclusion without sacrificing FSD and vice versa. Originality/value This paper provides first empirical evidence of the link between financial inclusion and FSD from the Sub-Saharan Africa perspective using data sourced from World Development Indicators spanning from 1990 to 2014 for 48 Sub-Saharan African economies and 217 economies in the world for the full sample.

Linkage between Financial Inclusion and Economic Growth: An Empirical Study of the Emerging Indian Economy

“…Table 4 shows that neither GDP per capita growth rate significantly explain financial inclusion and nor financial inclusion significantly explain GDP. This finding is contrary to the earlier findings (Raza et al, 2019;Sethi & Acharya, 2018;Sethi & Sethy, 2018) but in line with the finding of Anarfo et al (2019) who used a Sub-Saharan African sample. This may be due to difference in the Source: Authors' calculations.…”

“…Few studies have used single variable proxies for measuring financial inclusion, which may not give a true image of its linkage with economic development. According to Anarfo et al (2019), it is important to consider different dimensions of financial inclusion for good policy making. Some studies developed a multidimensional index to quantify financial inclusion (Anarfo et al, 2019; Gupte et al, 2012; Park & Mercado, 2018; Sarma, 2008, 2012, 2016; Sethi & Sethy, 2018; Yadav & Sharma, 2016) and most of them used indicators for financial inclusion such as branch penetration, access and usage of financial services.…”

“…According to Anarfo et al (2019), it is important to consider different dimensions of financial inclusion for good policy making. Some studies developed a multidimensional index to quantify financial inclusion (Anarfo et al, 2019; Gupte et al, 2012; Park & Mercado, 2018; Sarma, 2008, 2012, 2016; Sethi & Sethy, 2018; Yadav & Sharma, 2016) and most of them used indicators for financial inclusion such as branch penetration, access and usage of financial services. Developing an index can be helpful in evaluating the status of financial inclusion in different states or countries for different time periods or of states and economies of similar temperament for the same period (Yadav & Sharma, 2016).…”

“…According to Sharma (2016), ‘banking penetration, availability of banking services and usage of banking services in terms of deposits lead to higher economic growth’. Financial inclusion contributes toward economic growth (Anarfo et al, 2019; Raza et al, 2019; Sethi & Acharya, 2018; Sethi & Sethy, 2018) and financial sector development (Anarfo et al 2019). The empirical analysis of Sarma and Pais (2011) shows that other than urbanization, adult literacy and income inequality also explain the extent of financial inclusion.…”

“…Knowledge of the link of economic growth with financial inclusion is important for financial institutions, policy makers and researchers across the world for the robust growth and development of a nation. As the growth of the financial sector is largely determined by the number of the citizens who have the reach to finance, and financial inclusion depends on the level of development of the financial sector (Anarfo et al, 2019). Similarly, sound financial infrastructure through channelization of fund from savers to borrowers leads to robust growth of an economy and financial inclusion to build the base of a sound financial infrastructure (Sharma, 2016).…”