Does financial inclusion Spur Financial Development in Africa?
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Date
2014-07
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University of Ghana
Abstract
This study assessed the impact of financial inclusion on financial development in Africa. Using cross-section data covering forty-two African countries, the study uses regression analysis, to establish how the banking sector development is affected by financial inclusion. In this study, financial development used as the dependent variable is proxied by the ratios of money supply, bank credit and private credit to Gross Domestic Product. The independent variables include financial inclusion measured with two variables (accounts used to receive wages, and individual formal account) obtained by carrying out principal component analysis of fourteen (14) measures of financial inclusion. The other independent variables used are inflation, financial openness, a measure of institutional quality and natural resource endowment of the country. The empirical result revealed that higher levels of financial inclusion lead to financial development in the banking sector. In addition, institutional quality were found to have a positive effect on financial development whiles inflation and natural resource rents were found to have negative effects on financial development. Based on the findings of this study, it is recommended that the government, policy makers and the banks put in place delebrate measures to provide unrestricted access to financial services to the people. Also, whilst promoting the financial inclusion phenomenon, there is the need to maintain strong institutions and at the same time prudent measures to mitigate economic instability.
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Thesis (MPhil) - University of Ghana, 2014