Financial Inclusion, Fintech, and Income Inequality in Africa

Abstract

Financial inclusion and Fintech have revolutionized the financial sector and fundamentally changed how we store, save, borrow, transfer, and invest money. This paper investigates the impact of financial inclusion and Fintech on income inequality using waves of survey data for 2011, 2014, and 2017 across 39 African countries. By using pooled ordinary least square and two-stage least square (2sls) estimation methods, we obtain three key findings. First, institutional factors such as political stability, control of corruption, and government effectiveness determine Fintech and financial inclusion. Second, Fintech encourages individuals to have a formal bank account, thereby promoting financial inclusion. Third, financial inclusion and Fintech exacerbate income inequality. The direct implication of our findings is that policymakers make tradeoffs whether they seek to achieve higher inclusion and Fintech or to reduce income inequality. We highlight that a pro-poor financial sector development is vital. Easing the bottleneck in obtaining loans, offering agriculture-based Fintech services, and improving digital literacy are important steps to gain the most out of inclusion and Fintech in reducing income inequality.

Fintech, financial inclusion, and sustainable development in the African region

“…Regarding the control variables, the coefficients of domestic credit show a statistically significant negative effect on sustainable development across all specifications. This is consistent with the findings of Gök (139), who found that financial development leads to environmental degradation through increased carbon emissions (CO2). Additionally, Singh et al (186) investigated the impact of financial development on economic growth in India, a major emerging economy, using a Non-linear Autoregressive Distributed Lag (ARDL).…”

“…These variables are the ratio of domestic credit to the private sector (% of GDP) shows the significance of credit in supporting economic activities and fostering growth within the country (134-137). On the other hand, trade openness (% of GDP) is measured by the sum of exports and imports of goods and services relative to GDP, also it promotes economic growth by facilitating market access, encouraging competition, and driving innovation and efficiency gains [ (138)(139)(140)(141)(142)(143)]. Furthermore, accounting for the potential influence of urbanization on sustainable development, we included Urban population (% of total population) which tracks urbanization trends, rural-urban migration, and urban development (144)(145)(146).…”

The Role of FinTech in Sustainable Healthcare Development in Sub-Saharan Africa: A Narrative Review

“…FinTech solutions in healthcare may not be accessible to all populations, particularly those without access to digital technologies or financial services. This situation could lead to a widening gap in healthcare access between those who can afford FinTech solutions and those who cannot [84,85].…”

FinTech and Financial Inclusion in Sub-Saharan Africa: A Comparative Analysis

“…FinTech's growing popularity in SSA is primarily driven by the need to enhance financial and digital inclusivity. Numerous studies have highlighted FinTech's crucial role in promoting financial inclusion (Ashenafi & Dong, 2022;Chinoda & Mashamba, 2021;Demir et al, 2022;Ghosh, 2016;Kanga et al, 2022). Digital finance, as posited by the Consultative Group to Assist the Poor (CGAP), offers secure, convenient, and cost-effective financial services to low-income individuals in developing nations (Bhandari, 2018).…”