Determinants of Financial Inclusion in Africa: Is Institutional Quality Relevant?

Abstract

Financial inclusion is seen as an enabler to growth in an economy, especially in developing regions like Africa. Despite the importance of financial inclusion, many factors play a role in one’s decision to get involved in the financial sector. This paper therefore examined the determinants of financial inclusion in Africa, considering both demand and supply as well as infrastructure side factors using General Method of Moments (GMM) and the Ordinary Least Square (OLS) methods with data that spanned from 2004 to 2020. The study is a panel type that employed secondary data, that is sourced from the World Development Indicators, compiled by the World Bank. Twenty countries were purposively selected for the study based on data availability. The study revealed that GNI per capita, domestic credit to private sector and institution quality are significant determinants of financial inclusion in Africa. It was further revealed that GNI per capita, money supply and institutional quality contribute to the minimization of barriers to financial inclusion in the continent. This work is unique in the sense that it revealed the determinants of financial inclusion, using demand, supply and infrastructural factors in a single model, which is different from previous studies that examined the determinants using either demand only or supply only or both but not including infrastructural factors. Governments in the selected countries as well as development partners should therefore institute policies that would improve on financial inclusion, through the strengthening of institution, as well as take pragmatic measures to minimize barriers to financial inclusion in Africa.