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Determinants of Sustainable Financial Inclusion in Sub-Saharan Africa: A System GMM Approach

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  • Meshesha Demie Jima
  • Patricia Lindelwa Makoni

Abstract

There is no consensus on the key drivers of financial inclusion due to variation in the socioeconomic features of countries, use of indicators and research methods. The main objective of this study is, therefore, to empirically examine the key drivers of financial inclusion across 26 selected Sub-Saharan African (SSA) economies for the period between 2000 and 2019, using a system generalized method of moments (GMM). A principal component analysis (PCA) is applied to construct a composite index of financial inclusion to address the multi-dimensional nature of the variable. The findings of the study indicate that both the macroeconomic and microeconomic factors influence the level of financial inclusion of the SSA countries. Specifically, the lag effect, economic growth, financial stability, inflation, financial deepening, liquidity, profitability, and bank efficiency are important drivers of financial inclusion in the SSA region. It is therefore important for policy makers and regulators to consider these factors while developing policies and strategies that foster access to financial products and services and ensure financial inclusion in the region.

Suggested Citation

  • Meshesha Demie Jima & Patricia Lindelwa Makoni, 2023. "Determinants of Sustainable Financial Inclusion in Sub-Saharan Africa: A System GMM Approach," Prague Economic Papers, Prague University of Economics and Business, vol. 2023(6), pages 699-723.
    • Handle: RePEc:prg:jnlpep:v:2023:y:2023:i:6:id:845:p:699-723
    DOI: 10.18267/j.pep.845
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    References listed on IDEAS

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    1. Peter J. Morgan & Victor Pontines, 2014. "Financial Stability and Financial Inclusion," Microeconomics Working Papers 24278, East Asian Bureau of Economic Research.
    2. Demirgüç-Kunt, Asli & Huizinga, Harry, 2010. "Bank activity and funding strategies: The impact on risk and returns," Journal of Financial Economics, Elsevier, vol. 98(3), pages 626-650, December.
    3. Zhang, Ruixin & Ben Naceur, Sami, 2019. "Financial development, inequality, and poverty: Some international evidence," International Review of Economics & Finance, Elsevier, vol. 61(C), pages 1-16.
    4. Hodula, Martin, 2023. "Fintech credit, big tech credit and income inequality," Finance Research Letters, Elsevier, vol. 51(C).
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    More about this item

    Keywords

    financial inclusion; Sub-Saharan Africa; principal component analysis; bootstrap-based bias correction (BBBC); system GMM;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • O56 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Oceania

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