The impact of anti-money laundering regulations on inclusive finance: Evidence from Sub-Saharan Africa

Figures & data

Table 1. Variable descriptions and data sources

Variable	Variable Measurement	Data Source	Reference
Financial Inclusion	Accounts Ownership Commercial Bank Deposit Commercial Bank Branches Bank Borrowers Automated Teller Machines	World Development Indicators (WDI)	World Development Indicators | DataBank (worldbank.org)
AML regulations Index	Basel AML index	Basel Institute on	Basel AML Index | Basel Institute on Governance (baselgovernance.org)
Economic Growth	The growth of real GDP per capita	WDI	World Development Indicators | DataBank (worldbank.org)
Institutional Quality	The simple Average of the Six World Governance Indicators	World Governance Indicators (WGI)	Worldwide Governance Indicators | DataBank (worldbank.org)
Infrastructure	Telephone + Mobile subscriptions per 100 people	WDI	World Development Indicators | DataBank (worldbank.org)
Inflation	Consumer Price Index	WDI	World Development Indicators | DataBank (worldbank.org)
Bank Concentration	Concentration of Deposits in 5 Largest Banks	WDI	World Development Indicators | DataBank (worldbank.org)
Human Capital	Percentage of Secondary school enrolment	WDI	World Development Indicators | DataBank (worldbank.org)
Financial Stability	Z-score $\left(\frac{E/A_{it}+RO{A}_{it}}{\mathrm{\partial }RO{A}_{it}}\right)$	WDI	World Development Indicators | DataBank (worldbank.org)

Table 2. Summary statistics

Variable	Obs	Mean	Std. Dev.	Min	Max
Accounts Ownership	351	40.421	23.252	5.527	98.594
Bank Branches	351	8.588	11.646	0.648	54.362
Depositors	351	519.28	580.808	24.354	2173.18
Borrowers	351	127.652	152.305	0.566	880.957
ATM	351	17.625	23.576	0.395	101.503
AML Regulations	351	3.631	1.246	1.541	7.222
Institutional Quality	351	29.283	19.442	0.314	77.48
Inflation	351	171.807	276.149	103.411	453.71
Infrastructure	351	82.452	42.676	11.242	218.74
Economic Growth	351	1.201	4.388	−36.557	18.053
Financial Stability	351	11.943	6.342	0.25	44.413
Bank Concentration	351	81.696	15.553	40.245	100
Human Capital Development	351	60.209	28.188	12.467	158.458

Where financial inclusion is measured using five (5) proxies (accounts ownership, number of bank branches, depositors, borrowers and automated teller machines). AML regulations index is measured using the Basel Anti-money Laundering Index published by the Basel Institute on Governance. We take the inverse of the index following Agoba et al. (2019). Economic growth is measured by the growth rate of GDP per capita. The simple average of the World Governance Indicators’ six (6) dimensions is used to measure institutional quality, whereas the consumer price index measures inflation. Telephone and mobile subscriptions per 100 people are used to measure infrastructure. The bank z-score is used to measure financial stability, whereas bank concentration is defined as the degree of deposit concentration in the five largest banks. Finally, human capital is defined as the percentage of eligible students enrolled in secondary education.

Table 3. Two-step systems GMM regression results on the effect of AML regulations on financial inclusion

	(1)	(2)	(3)	(4)	(5)
	Account Ownership	Bank Branches	Depositors	Borrowers	ATM
Lag of Accounts Ownership	.812***
	(.087)
Lag of Bank Branches		0.987***
		(0.013)
Lag of Depositors			1.011***
			(.023)
Lag of Borrowers				0.772***
				(0.121)
Lag of ATM					1.023***
					(0.016)
AML Regulations	−1.756***	−0.467***	3.309***	3.374***	0.473**
	(.433)	(0.092)	(.048)	(0.962)	(0.182)
Institutional Quality	.257***	0.023***	.037	0.214***	0.025
	(.072)	(0.005)	(.491)	(0.012)	(0.015)
Inflation	−.004***	−0.003***	−.214***	−0.115***	0.004
	(.001)	(0.001)	(.039)	(0.017)	(0.005)
Infrastructure	.022***	0.005**	.465**	0.187***	0.005***
	(.002)	(0.002)	(.184)	(0.034)	(0.001)
Economic Growth	.005***	0.003*	.006**	0.001	0.004***
	(.001)	(0.001)	(.003)	(0.001)	(0.001)
Financial Stability	.569***	0.113***	.527	0.435***	0.039
	(.187)	(0.014)	(1.667)	(0.089)	(0.043)
Bank Concentration	−.232***	−0.013***	−.394	−0.834***	−0.123***
	(.061)	(0.004)	(.441)	(0.215)	(0.008)
Human Capital	.246***	−0.003	.166***	0.222	0.012*
	(.045)	(0.002)	(.038)	(0.230)	(0.006)
Constant	.889***	0.517	−5.398***	−6.875**	0.945***
	(.278)	(0.479)	(1.687)	(2.736)	(0.102)
Observations	308	308	308	308	308
Country Effects	Yes	Yes	Yes	Yes	Yes
Time Effects	Yes	Yes	Yes	Yes	Yes
No. of groups	44	44	44	44	44
No. of instruments	33	31	29	31	32
Prob>F	.000	0.000	.000	0.000	0.000
AR (1)	.001	0.003	.015	0.011	0.012
AR (2)	.244	0.369	.278	0.278	0.258
Hansen Test	.266	0.286	.248	0.349	0.238

Robust standard errors are in parentheses *** p < .01, ** p < .05, * p < .1

Table 4. Two-step systems GMM regression results on the effect of AML regulations on financial inclusion of countries below the mean

	(6)	(7)	(8)	(9)	(10)
	Accounts Ownership	Bank Branches	Depositors	Borrowers	ATM
Lag of Accounts Ownership	.364**
	(.157)
Lag of Bank Branches		1.009***
		(0.031)
Lag of Depositors			1.007***
			(.129)
Lag of Borrowers				0.942***
				(0.116)
Lag of ATM					1.014***
					(0.054)
AML Regulations	.835	0.693***	.753	0.543**	−0.064
	(.772)	(0.066)	(.634)	(0.218)	(1.783)
Institutional Quality	.107**	−0.003	−.885	0.167*	0.002
	(.046)	(0.007)	(1.985)	(0.089)	(0.034)
Inflation	−.003	−0.003***	−.022**	−0.006	0.001
	(.003)	(0.001)	(.01)	(0.007)	(0.002)
Infrastructure	.031	0.004**	.145***	0.147**	−0.002
	(.07)	(0.002)	(.002)	(0.065)	(0.008)
Economic Growth	.003*	0.004***	.002	0.004***	0.005**
	(.002)	(0.001)	(.019)	(0.001)	(0.002)
Financial Stability	.681***	0.008	2.056**	0.047	0.123**
	(.045)	(0.019)	(.885)	(0.795)	(0.044)
Bank Concentration	−.886**	−0.003	−.253***	0.226	0.124***
	(.392)	(0.014)	(.099)	(0.667)	(0.020)
Human Capital	.043	0.006**	.032	0.375***	0.005
	(.09)	(0.003)	(.441)	(0.034)	(0.009)
Constant	.665***	0.991***	−.391***	0.906**	0.685***
	(.124)	(0.177)	(.058)	(0.435)	(0.057)
Observations	170	170	170	170	170
Country Effects	Yes	Yes	Yes	Yes	Yes
Time Effects	Yes	Yes	Yes	Yes	Yes
No. of groups	28	28	28	28	28
No. of instruments	15	18	16	15	20
Prob>F	.000	0.000	.000	0.000	0.000
AR (1)	.011	0.023	.011	0.015	0.016
AR (2)	.434	0.519	.318	0.208	0.345
Hansen Test	.316	0.432	.211	0.342	0.267

Robust standard errors are in parentheses *** p < .01, ** p < .05, * p < .1

Table 5. Two-step systems GMM regression results on the effect of AML regulations on financial inclusion of countries above the mean

	(11)	(12)	(13)	(14)	(15)
	Accounts Ownership	Bank Branches	Depositors	Borrowers	ATM
Lag of Accounts Ownership	0.741**
	(0.335)
Lag of Bank Branches		0.955***
		(0.102)
Lag of Depositors			0.989***
			(0.097)
Lag of Borrowers				0.728***
				(0.111)
Lag of ATM					0.946***
					(0.081)
AML Regulations	−0.127**	−0.312	3.435***	1.750***	1.475***
	(0.061)	(0.170)	(0.916)	(0.419)	(0.272)
Institutional Quality	0.541***	0.237***	0.374	0.111	0.058
	(0.123)	(0.013)	(0.904)	(0.552)	(0.196)
Inflation	−0.082**	−0.023**	−0.090	−0.441***	0.022**
	(0.029)	(0.008)	(0.771)	(0.144)	(0.011)
Infrastructure	0.227***	0.001	0.335*	0.372***	0.053
	(0.012)	(0.014)	(0.186)	(0.033)	(0.151)
Economic Growth	0.002	0.005***	0.006	0.004**	0.003***
	(0.003)	(0.001)	(0.006)	(0.002)	(0.001)
Financial Stability	0.922*	0.002	0.779	0.323***	0.163**
	(0.479)	(0.04)	(0.587)	(0.094)	(0.076)
Bank Concentration	−0.538***	0.003	−0.666***	−0.502***	0.114***
	(0.123)	(0.012)	(0.268)	(0.085)	(0.019)
Human Capital	0.130***	0.002	−0.001	0.465	0.004
	(0.012)	(0.009)	(0.206)	(0.485)	(0.029)
Constant	3.466*	1.63***	4.66***	4.404***	4.520***
	(1.876)	(0.533)	(1.146)	(0.230)	(0.317)
Observations	117	117	117	117	117
Country Effects	Yes	Yes	Yes	Yes	Yes
Time Effects	Yes	Yes	Yes	Yes	Yes
No. of groups	22	22	22	22	22
No. of instruments	16	17	19	16	15
Prob>F	0.000	0.000	0.000	0.000	0.000
AR (1)	0.049	0.031	0.004	0.017	0.006
AR (2)	0.313	0.268	0.315	0.345	0.267
Hansen Test	0.288	0.365	0.134	0.368	0.215

Robust standard errors are in parentheses *** p < .01, ** p < .05, * p < .1

Agoba, A. M., Abor, J. Y., Osei, K., Sa-Aadu, J., Amoah, B., & Dzeha, G. C. O. (2019). Central bank independence, elections and fiscal policy in Africa: Examining the moderating role of political institutions. International Journal of Emerging Markets, 14(5), 809–17. https://doi.org/10.1108/IJOEM-08-2018-0423

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Data availability statement

The data that support the findings of this study are openly available in World Development Indicators at http://datatopics.worldbank.org/world-development-indicators/and the Basel Institute of Governance at https://www.baselgovernance.org/basel-aml-index/public-ranking