Abstract:
This study examines the impact of financial regulation on financial inclusion in Sub-Saharan
Africa, considering the moderating role of financial stability. By analysing the relationship between
financial inclusion and the most prominent macro-prudential regulation (capital adequacy),
we find that tightening prudential regulations could negatively impact access to finance,
thereby conflicting with Sub-Saharan African economies’ financial inclusion goals. More specifically,
the capital adequacy requirement tremendously reduces banks’ capacity to provide financial
services and this could lead to credit rationing thereby reducing financial inclusion. The
results also indicate that, the interaction of financial regulation with financial stability positively
impacts financial inclusion. Thus, financial stability augments financial regulation to have an
affirmative impact on financial inclusion. The practical implications of this paper are that, one of
the ways central governments and policy makers in Sub-Saharan African countries can increase
and get the most out of financial inclusion is to formulate policies targeted at reducing capital
adequacy requirements of financial institutions and other constraints that limit the operations
and efficiency of financial institutions. Such policies should also aim at creating an enabling
environment to promote financial stability.
