Financial inclusion and inclusive growth in sub-Saharan Africa

Abstract

This paper empirically examines the quantitative relationship between financial inclusion and inclusive growth in sub-Saharan Africa using a panel of 46 countries for the period 2004–2018. The evidence suggests that usage of financial services, among other covariates, has a quantifiable and discernible impact on inclusive growth compared with availability and knowledge of financial services. Precisely, a unit increase in the usage of financial products and services improves inclusive growth by 0.03 units in sub-Saharan Africa. The paper contributes to literature by initially constructing a broader index of inclusive growth and subsequently estimating the separate quantitative effects of three categories of financial inclusion indicators on inclusive growth by employing the Arellano–Bover/Blundell–Bond system Generalized Method of Moment estimator. The findings underscore the need for policymakers to develop innovative, sustainable and inclusive financial systems capable of distributing growth benefits equitably. This can be achieved through moderate lending rates and transaction charges, improved access to retail and corporate loans, mortgages, overdrafts, credit cards, letters of credits and user-friendly financial technologies.

Keywords:

• Financial Inclusion
• Inclusive Growth
• Poverty
• Inequality
• Sub-Saharan Africa

JEL:

• G21
• I30
• O15
• O16

PUBLIC INTEREST STATEMENT

The World Bank Group theorized that financial inclusion is a catalyst to achieving some of the Sustainable Development Goals (SDGs). Moreover, empirical evidences also suggest that broader adoption and usage of financial services reduces poverty and income inequality, supports the growth of businesses and has implications for monetary policy effectiveness and financial stability.

It is against this background that monetary policymakers in developing economies have gradually taken steps to eliminate some of the barriers to accessing financial services in order to address the socio-economic consequences of widespread involuntary financial exclusion.

Consequently, we investigated whether knowledge, available and usage of financial services by various economic agents promote inclusive growth in Sub-Saharan Africa. The evidence suggest that the extent of usage of financial services matters more than knowledge and availability in promoting inclusive growth. It is recommended that, policymakers and financial institutions collaborate to progressively develop innovative, sustainable and inclusive financial systems.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

Notes on contributors

Bernard Sarpong

Bernard Sarpong is a young Economist with research interest in Development, Financial and Monetary Policies for inclusive growth in emerging and frontier market economies. He has six (6) years’ experience in financial market analysis and strategic banking research. He has over the years tutored students pursuing various Economics courses at both the Department of Economics and School of Continuing and Distance Education, University of Ghana. He is also a peer reviewer for three refereed economics journals; Economic Letters, International Journal of Social Economics and Ghanaian Journal of Economics. He holds both Master of Philosophy and Bachelor of Arts degrees in Economics from the University of Ghana.

The findings reported in this paper provide a compelling evidence for central governments to devote more resources to the provision of robust Information and Communication Technology infrastructure to complement the financial inclusion agenda of monetary authorities.