Impact of Institutions on Financial Inclusion in Africa

Financial inclusion, for which the keystone is access to a bank account, is crucial to overcome the socioeconomic backwardness of African countries and to improve the African societies’ well-being. The study concentrates on this continent to better understand the nature of its development in terms of financial inclusion. The research aims to identify the institutions’ impact on financial inclusion in 35 African countries in the years 2010-2019. The analysis is based on a panel model with fixed individual effects. Novelty of the study rests in incorporation of four institutional variables: constraints on the executive, resolving insolvency, property rights, and WGI. The results showed a positive and statistically significant impact of resolving insolvency on financial inclusion (a measure covering people with financial institution accounts) across the entire sample. However, this relationship is especially visible in more developed countries, while constraints on the executive turned out to be crucial for low-income countries. Another novelty of the study is creation of an index of financial inclusion covering Mobile Money which was used to verify the obtained results. In this case, no positive impact of any institutional variable was identified which may mean that a favourable institutional environment is not required for the development of Mobile Money.