Financial inclusion and its impact on economic growth: Empirical evidence from sub-Saharan Africa

Abstract

This study examines the impact of financial inclusion on economic growth using panel data of 22 sub-Sahara African (SSA) countries during the period spanning from 2012 to 2018. The study employs the system Generalized Method of Moments (GMM). Using a composite index of financial inclusion as well as individual financial inclusion indicators, we discovered that the availability dimension of financial inclusion, penetration dimension of financial inclusion and composite financial inclusion (all indicators put together) significantly and positively impact economic growth while the usage dimension of financial inclusion improves economic growth but not significantly. Also, bank branches and ATMs have positive and significant impact on economic growth, deposit accounts and outstanding loans promote economic growth but not significantly while outstanding deposits adversely affects economic growth. In addition, findings for mobile money indicators from 2012 to 2018 revealed that mobile money agents weaken economic growth while mobile money accounts and mobile money transactions foster economic growth but not significantly. This implies that financial education policies which help Africans better understand the potential benefits of the usage of banking services should be pursued.

Keywords:

• Financial inclusion
• economic growth
• principal component analysis
• GMM
• sub-Saharan Africa

Public Interest Statement

Financial inclusiveness plays important role in the economy as it facilitates positive wealth creation and sustainable economic growth. In the United Nations’ (UN) Sustainable Development Goals (SDGs), financial inclusion features prominently as a target objective in eight (8) out of the 17 SDGs. For example, to achieve health and well-being for all (SDG 3) amidst the novel coronavirus pandemic, financial inclusion through digital financial services can help minimize community-based transmission in Africa. Digital finance does this through providing secure, low-cost and contactless financial instruments across ecosystems. Therefore, this study examined how different dimensions of financial inclusion affects economic growth in sub-Saharan Africa. Undeniably, the study has revealed that the general financial inclusion, penetration and availability dimension, improves economic growth while the usage dimension does not influence economic growth meaningfully. The study provided some important policy suggestion that seek to improve financial inclusion especially usage of financial services in the sub-region.

Disclosure statement

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

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Godwin Imo Ibe

Specifically, Kenechukwu Onochie Offor initiated the idea of this paper during the course of his Postgraduate Studies in the Department of Banking and Finance, Faculty of Business Administration, University of Nigeria. The other authors Chuka Ifediora, Eze Festus Eze, Samuel Manyo Takon, Anthony Eboselume Ageme and Godwin Imo Ibe, keyed into the topic because of our interest in development finance. Prof. Josaphat U. J. Onwumere is Kenechukwu’s supervisor and played a major role in seeing to the completion of the paper. Our collective interest was to empirically review the impact of financial inclusion on economic growth in sub Saharan Africa given the enormous contribution of finance at contributing to economic growth and development. Based on our findings, financial inclusion, penetration and availability dimension, improves economic growth while the usage dimension does not influence economic growth meaningfully. Therefore, this paper is apt at these times where most sub-Saharan African countries are in dire needs of alternative sources of finance to grow their economies.