Global Regulatory Standards and Financial Inclusion in Africa

Abstract

Inclusive finance that takes into consideration lower-income households is an important policy goal. Despite the above claim, greater regulation of the financial system is the way to mitigate the risk running from policies geared toward greater financial inclusion to the integrity and stability of the financial system. This study recognizes the causality running from regulatory requirement to financial inclusion efforts since this direction of causality has received no much empirical evidence in the literature. The study, therefore, seeks to examine global regulatory standards and financial inclusion in Africa. A cross-sectional data set of twenty-seven (27) countries in Africa is analyzed. The study employs linear regression models and OLS estimation technique for the empirical investigation. The baseline model shows no significant relationship between regulatory variables and financial inclusion except Government owned banks regulatory variable, which had a negative relationship with financial inclusion. All the variables entered the second econometric model and tested significantly except the entry into banking regulatory variable after the study introduced country specific macroeconomic controls. The results of the empirical estimation established that global regulatory standards only have significant effect on financial inclusion when the macroeconomic framework of individual countries is taken into consideration. Moreover, the study established that these country- specific macroeconomic indicators have an effect on financial inclusion. The variables were found to be statistically significant in influencing financial inclusion. Based on the empirical results, the study recommends that in order for the Standard Setting Bodies to deliver on their mandate of successfully incorporating financial inclusion into their work, there is the need to strengthen information disclosure by banks. Moreover, some of the standards should be revised to incorporate the specific macroeconomic characteristics and peculiarities of developing countries.