Financial Inclusion, Monetary Policy, Financial Sector Development and Financial Regulation in Sub-Saharan Africa
Date
2018-07
Authors
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Publisher
University of Ghana
Abstract
This thesis is made up of three stand-alone empirical chapters that examine the relationship among financial inclusion, monetary policy, financial sector development and financial regulation in Sub-Saharan Africa. Chapter two presents an overview of financial inclusion, monetary policy, financial sector development and financial regulation in Sub-Sahara Africa. The overview show that Sub-Saharan Africa stock markets are comparatively young undercapitalized and they are not liquid. Nevertheless, in the last decade stock markets in Africa have performed well even after taking into consideration standard measures of risk and exchange rate effect adjustment. A lot of progress has been made across Sub-Saharan African countries to implement and strengthen structural reforms to enhance the process of financial intermediation. Over the years, credit provided by banks in Africa have been improving, though they are quite low relative to other emerging sub-regions.
Chapter three is the first empirical chapter, which investigates the dynamic and bi-causal link between monetary policy and financial inclusion in sub-Saharan Africa using a panel VAR framework. The researcher obtained data from World Development Indicators (WDI) spanning from 1990 to 2014 for 48 sub-Saharan African economies. The findings suggest that a bi-causal relationship exists between monetary policy and financial inclusion. Specifically, it is evident that monetary policy affects financial inclusion, and financial inclusion is also influenced by monetary policy. The policy implication of this study is that the effectiveness of monetary policy depends on financial inclusion. Hence, the efforts of governments in sub-Saharan African countries should aim at policies that enhance financial inclusion for effective implementation of monetary policy. Also, promoting financial inclusion will require governments in sub-Saharan Africa to reduce their monetary policy rates. Chapter four is the second empirical chapter and it investigates the dynamic link between financial inclusion and financial sector development in Sub-Sahara Africa. This paper employs a panel Vector Autoregressive framework to examine the dynamic link between financial inclusion and financial sector development in Sub-Sahara Africa. The findings indicate that, there is a reverse causality between financial sector development and financial inclusion in both the Sub-Sahara Africa countries sample and the full sample. It is evident that, financial inclusion is a driver of financial sector development and vice versa. The practical implication of this study is that, financial inclusion should not only be pursued as a policy objective but it could also be an outcome variable of financial sector development and vice versa. This implies, African economies and governments in their effort to enhance financial inclusion, financial sector development can serve as a policy tool. This means that, policies aimed at promoting financial inclusion will not impede financial sector development because the two are complementary. This suggest that, we can achieve financial inclusion without sacrificing financial sector development and vice versa. This paper provides first empirical evidence of the link between financial inclusion and financial sector development from the Sub-Sahara Africa perspective using data sourced from World Development Indicators (WDI) spanning from 1990-2014 for 48 Sub-Saharan African economies and 217 economies in the world for the full sample.
Chapter five presents the last empirical chapter which 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 that promote financial stability.
Keywords and Phrases: Monetary policy; financial inclusion; GDP growth rate; Inflation Rate; Real Effective Exchange Rate; Economic growth; Financial sector development, Panel vector autoregression; Financial Stability; Financial Regulation
Description
PhD. Finance
Keywords
Monetary Policy, Inflation Rate, Economic Growth, Financial Inclusion, GDP Growth Rate