Monetary policies and bank lending in developing countries: evidence from Sub-Sahara Africa

Abstract

PurposeThe purpose of this paper is to examine monetary policies and bank lending in the emerging economies of Sub-Sahara Africa.Design/methodology/approachThe dynamic system-generalized method of moments (GMM) that overcomes issues of unobserved period and country-specific effects, as well as potential endogeneity of explanatory variables, is applied in the estimation exercise. The study uses the data for 80 banks across 20 Sub-Saharan African countries from 2010 to 2019.FindingsThe findings show that expansionary monetary policy such as an increase in money supply stimulates bank lending, while contractionary monetary policies like increase in the monetary policy rates by the central banks lead to credit contraction, albeit a weak effect due to possible underdevelopment of financial markets, institutional constraints, bank concentration and other rigidities in the system characteristic of developing countries that undermine the effectiveness of monetary policy transmission. Capital adequacy ratio and size of economic activities are other variables that significantly influence bank lending channels.Originality/valueWhile greater empirical attention has been devoted to the nexus between monetary policies and macroeconomic variables in country-specific studies, the connection between monetary policies and bank lending at an extensive regional or cross-country level is still scanty. For Sub-Saharan Africa, there is a palpable lack of empirical evidence on this. This study, therefore, seeks to fill this gap in a region where the impact of monetary policies on credit intermediation is crucial to the economic diversification efforts of the governments of Sub-Sahara Africa.

Applying the stimulus-organism-response theory to investigate determinants of students’ social entrepreneurship: moderation role of perceived university support

“…Nonetheless, in lieu of the spread of various solutions, such as inspiring cultural values for entrepreneurship (Calza et al , 2020), encouraging locus of control and the desire for achievement (Uysal et al , 2022; Suyunov, 2021) and reducing entrepreneurial barriers (DÖLarslan et al , 2020; Abaidoo and Agyapong, 2022), we recommend a focus on entrepreneurial education and training, as this strategy focus will not only help to increase social entrepreneurial career interests and intentions but also help students to increase their social self-confidence related to establishing and managing social business ventures and help them to recognize social entrepreneurial opportunities in business markets. However, it is observed that this strategy also takes into consideration the pedagogical method of experiential learning, real-life business situations (Cui and Bell, 2022; Modugu and Dempere, 2022) and extracurricular activities (Nguyen et al , 2021). This can equip students with the necessary knowledge and ability in real-life entrepreneurship and help them to behave in accordance with their entrepreneurial intention.…”

Monetary policy regimes and price stability in the West African monetary zone

“…The empirical review related to this study was mostly on Nigeria and is more on the effect of monetary policy on bank lending Modugu and Dempere (2022), Bala, Godiya, Hadith, and Maijama'a (2022), Adetutu et al, (2021), Olofinlade and Azeez (2021) Yunusa, Williams, and Adegbenle (2020), Lartey (2018), Abere, Obarafo, and Adewole (2020) Mukolu and Adeleke (2020), Olofinlade, Oloyede, and Oke (2020) and Mordi, et al (2019). Also, on the effect on bank credit especially to the private sector Awoniyi and Ogundipe (2021) 2018) Oyeyemi (2019).…”

“…Also, on the effect on bank credit especially to the private sector Awoniyi and Ogundipe (2021) 2018) Oyeyemi (2019). There were just a few on cross-section, such as Modugu and Dempere (2022), Onyi and Umoh (2022), Takyi and Fosu (2019), Gambacorta (2017) and Balogun (2007). It is the study done by Balogun (2007) that is close to this study.…”

Macroeconomic determinants of balance of payments performance in selected African countries

“…The upward trajectory in terms of money supply for most African countries caused domestic credit expansion for these countries which in turn leads to the depletion of their trade balances (Modugu & Dempere, 2022).…”