Financial development, inclusion, credit supply and economic growth: an empirical study of East Africa

After 65 years of independence, large sections of Indian population still remain unbanked. This has led generation of financial instability and lower income group who do not have access to financial products and services. However, in the recent years the government and Reserve Bank of India has been introduced the concept and idea of financial inclusion.Financial inclusion is an important method of economic development of a nation. Financial sector inclusion is very important component of inclusive growth strategy. Financial inclusion can be described as the delivery of banking and other financial services at affordable costs to the vast section of the disadvantaged and low income groups. It plays very vital role in economic progress. Financial sector inclusion helps in eliminating poverty, reducing inequality, eliminating unequal access to opportunities, reducing inequalities of choice. This study tries to understand policy initiatives by the govt for financial inclusion, reasons for financial exclusion, steps taken by the government for financial inclusion and implications of financial inclusion. This study is mainly based on secondary data and collected information from books, journals and website.

Publisher Summary This chapter discusses the financial development and economic growth in underdeveloped countries. An observed characteristic of the process of economic development over time, in a market-oriented economy using the price mechanism to allocate resources, is an increase in the number and variety of financial institutions and a substantial rise in the proportion not only of money but also of the total of all financial assets relative to GNP and to tangible wealth. Typical statements indicate that the financial system somehow accommodates—or, to the extent that it malfunctions, it restricts—growth of real per capita output. Such an approach places emphasis on the demand side for financial services; as the economy grows it generates additional and new demands for these services, which bring about a supply response in the growth of the financial system. In this view, the lack of financial institutions in underdeveloped countries is simply an indication of the lack of demand for their services.

This paper examines the causal relationship between financial inclusion, institutional quality and inclusive growth within a four-variate ARDL-EC framework and forecast error variance decomposition technique for the period of 2003-2018 using quarterly data in Nigeria. The paper incorporates two variables to capture institutional quality (government effectiveness and regulatory quality) in order to eliminate variable omission bias in which most existing studies are characterised. Those adopted techniques confirm the long-run and bi-causal relationships mainly between financial inclusion and inclusive growth in Nigeria. In addition, bi-directional causal relationships of the outcome of the study are also established between financial inclusion and government effectiveness, likewise between inclusive growth and regulatory quality mainly in the short-run. The results based on the model and empirical outputs suggest that for the authorities of this economy to achieve and sustain equitable growth, fully disciplined policies that can promote and enhance financial inclusion and inclusive growth of the greater proportion of the population should not be managed and handled by loosed hands
 This paper examines the causal relationship between financial inclusion, institutional quality and inclusive growth within a four-variate ARDL-EC framework and forecast error variance decomposition technique for the period of 2003-2018 using quarterly data in Nigeria. The paper incorporates two variables to capture institutional quality (government effectiveness and regulatory quality) in order to eliminate variable omission bias in which most existing studies are characterised. Those adopted techniques confirm the long-run and bi-causal relationships mainly between financial inclusion and inclusive growth in Nigeria. In addition, bi-directional causal relationships of the outcome of the study are also established between financial inclusion and government effectiveness, likewise between inclusive growth and regulatory quality mainly in the short-run. The results based on the model and empirical outputs suggest that for the authorities of this economy to achieve and sustain equitable growth, fully disciplined policies that can promote and enhance financial inclusion and inclusive growth of the greater proportion of the population should not be managed and handled by loosed hands

This study examines the short and long-run relationships between financial development, integration, inclusion, and economic growth in SADC, as well as the corresponding threshold levels. Covering the period 1995 to 2020, the ARDL technique was used to test for co-integrating relationships, and the GLS was utilized for the determination of the respective threshold levels. The study establishes that bank credit to the private sector negatively affects economic growth in the long run. Most SADC countries were still operating below their respective minimum financial development threshold levels. It is observed that there are no threshold levels for financial integration in SADC, although the result, compared with the threshold levels of financial development seems to suggest that the financial domestic system and some level of economic development are a prerequisite for financial integration decisions. The financial inclusion threshold level for poor SADC countries is low. Yet most of these countries had the highest mobile banking facilities in the region. One possible indication can be that these countries may be operating at financial inclusion levels detrimental to economic growth. Financial development, along with its facets of financial integration and financial inclusion, is found to be the driver of economic growth in SADC. SADC countries, therefore, need to establish a strategic mix of these facets of financial development for the realization of significant economic growth.

The financial system plays a crucial role in supporting an economy’s ability to address environmental concerns and enhance its ability to withstand ecological risks, considering its financial requirements. To this end, the present study attempts to explore the impact of financial development, financial inclusion and economic uncertainty on green investments in BRICS economies towards achieving the sustainable development goals (SDGs), particularly SDG7 and SDG13. The study employs a robust set of econometric tools to achieve the aforementioned objectives. These tools include the cross-sectional dependency test to estimate cross-sectional dependency, the Westerlund cointegration test to check cointegration and heterogeneity, the cross-sectionally augmented panel unit root test (CIPS) and the cross-section augmented Dickey–Fuller (CADF) second-generation test to confirm stationarity properties, the augmented mean group (AMG) and common correlated effects mean group (CCEMG) to determine the long-run relationship, and the Dumitrescu and Hurlin test to estimate panel causality. The study confirms the presence of cross-sectional dependency and cointegration among the variables. The long-run estimate reveals that financial development, inclusion and economic growth have a positive role in increasing green investments; in contrast, economic policy uncertainty (EPU) reduces green investment in BRICS economies. The panel causality test reports a bi-directional causality between green investments, financial inclusion and economic growth, whereas a unidirectional causality exists between green investments, financial development and EPU. The study offers useful findings.

Purpose Financial inclusion is one of the key enablers of economic growth, poverty alleviation and consequently achieving inclusive growth. This paper examines the causality between financial inclusion and inclusive growth in Egypt during the period (2004–2022). Design/methodology/approach To achieve our aim, we first construct the financial inclusion index and a multidimensional inclusive growth index for Egypt using principal components analysis. Second, we use the Toda–Yamamoto test to examine the causality between the two indices. Findings The results reveal that the inclusive growth index experienced an upward trend over the study period, while the financial inclusion index has increased since 2018. The results of the Toda–Yamamoto test indicate bidirectional causality between financial inclusion and three of the sub-indices of inclusive growth, as well as the overall inclusive growth index. Research limitations/implications The empirical evidence highlights that financial inclusion efforts will not achieve their targeted outcome unless a simultaneous inclusive growth strategy is conducted. Moreover, improving governance indicators is crucial to promoting inclusive growth. Originality/value Although the relationship between financial inclusion and economic growth has been widely investigated, its relationship with inclusive growth remains unexplored. The novelty of this study resides in constructing two composite indices of financial inclusion and inclusive growth in Egypt and testing the relationship between them. Peer review The peer-review history for this article is available at: https://publons.com/publon/10.1108/IJSE-08-2024-0667

This study analyzes the discussion on financial inclusion for inclusive economic growth, discussed at APEC during 2010-2018. Financial inclusion, a way to increase access to finance with low financial costs, has been discussed for a long time as an international agenda for the financially underprivileged, such as women, the poor, and SMEs. The World Bank has developed financial inclusion indicators such as the Global Financial Inclusion Index and the IMF to provide financial data. In 2010, the G20 adopted the G20 Principles for Innovative Financial Inclusion and launched a global partnership for financial inclusion for concrete implementation. APEC has also been actively discussing financial inclusion, holding the Asia Pacific Financial Inclusion Forum every year since 2010. In particular, in the era of digital innovation, APEC Leaders discuss various ways to raise the financial understanding and financial knowledge of the underprivileged with the digital divide. The most controversial part of expanding financial inclusion is the relationship between financial inclusion and financial development. Financial inclusion has been chiefly approached from social policy rather than economic or financial policy. On the other hand, financial development sees finance as an industry that competes in the market. In APEC, the economic and social issues of financial inclusion and the logic of the market of financial development can be harmonized through regional cooperation. Eventually, ways to achieve inclusive growth can be achieved so that the marginalized class in member economies can be freed from poverty through building a sustainable financial inclusion ecosystem.

This research explores the connection between economic growth, financial development, financial inclusion and financial innovation in Africa by employing the panel structural vector autoregression using annual data from 2004 to 2018. The vector error correction model Granger causality test was applied to examine directional causality with financial inclusion, financial innovation and economic growth used as dependent variables, and error correction term (ECT) coefficients are negatively significant at one percent for the long-term causality. It shows that the causal association between financial inclusion and financial innovation is explained by the African economy feedback hypothesis. The short-run causality shows a causal connection between economic growth and financial inclusion as well as financial innovation. It means that additional development in any one of these variables (i.e., economic growth, financial innovation and financial inclusion) will have a vital impact on connected variables, which can be noticed in the short run. This is why policymakers and government should consider each of the facets of financial inclusion and financial innovation as they do not merely affect each other; they also affect economic activities, hence fiscal policy is capable of steering more financial inclusions, financial innovation and financial development.

This study investigates the impact of financial development and financial inclusion on poverty alleviation. The study aims to contribute to the existing literature on the role of financial development and inclusion in reducing poverty. Using a quantitative method approach, this study analyzes the relationship between financial development, financial inclusion, and poverty reduction. The findings of this study reveal that financial development and financial inclusion have a significant positive effect on poverty alleviation. Specifically, the results show that increased access to financial services, such as savings accounts, credit, and insurance, can help reduce poverty by providing households with the financial tools needed to manage risk, invest in education and healthcare, and accumulate wealth. The study's results have important implications for policymakers and practitioners seeking to promote financial development and inclusion as tools for poverty reduction. The findings suggest that policies aimed at increasing access to financial services, improving financial literacy, and promoting financial inclusion can be effective in reducing poverty. Overall, this study provides new insights into the relationship between financial development, financial inclusion, and poverty alleviation, and highlights the importance of considering financial development and inclusion in poverty reduction strategies.

PurposeThe purpose of this paper is to assess the dynamic impact of financial inclusion on economic growth for a large number of developed and developing countries.Design/methodology/approachThis study uses some panel data models such as country-fixed effect, random effect and time fixed effect regressions, panel cointegration, and panel causality tests to examine the linkage between financial inclusion and economic growth. Panel cointegration is being used to test the long run association between financial inclusion and economic growth, whereas panel causality test is used to find the direction of causality between financial inclusion and economic growth. The data on financial inclusion are taken from Sarma (2012) for the period 2004-2010.FindingsThe empirical findings reveal that there is a positive and long run relationship between financial inclusion and economic growth across 31 countries in the world. Further, panel causality test shows a bi-directional causality between financial inclusion and economic growth Thus, the study confirms that financial inclusion is one of the main drivers of economic growth.Research limitations/implicationsThis study has two limitations. First, this study considers only banking institutions in the analysis. Second, the period tested for the long run relationship is not long enough.Practical implicationsThis study empirically measures the quantitative impact of financial inclusion policies pursued across the world. The study also suggests that policies emphasizing financial sector reforms in general and promoting financial inclusion in particular shall result in higher economic growth in the long run.Originality/valueThis study attempts to assess the long run relationship between financial inclusion and economic growth with the help of a multidimensional index of financial inclusion. Therefore, this can be a valuable contribution to the banks and policymakers.

The relationship between financial sector development and economic growth is a crucial issue for both developing and developed nations. To keep up with the changing world economy, there is need for developing countries like Kenya to develop their financial sectors. Kenya’s financial sector development has had a major role in its economic growth and this study provides a selected review of the literature and the relationship between Kenya’s financial sector and its economic growth. Numerous studies have been done on the effect of the financial sector on economic growth and the general conclusion is that the financial sector plays a central role in economic development and growth of the country. However, there is a limitation of empirical and theoretical work supporting the concept in developing countries. Most of the studies done focus on the direction of causality between finance development and economic growth and their relationship. For this reason, the study set out to analyze the influence of financial sector development on Kenya’s economic growth. The Neo-classical theory of growth was used to inform the study variables; banking sector, export market and economic growth. The study adopted an ex-post facto research design with Ordinary Least Square (OLS) method. The data used was secondary in nature obtained from the Kenya National Bureau of Statistics from the period 2010-2019. The findings revealed that there was a positive influence of financial sector development on economic growth. This implies that financial sector development promotes economic growth in Kenya. In policy terms, the findings, imply that Kenya can accelerate economic growth by improving the financial sector since financial development can be an engine of growth in this country. The study recommended that other major components of the financial sector development apart from the two studied; banking sector and export market, in this paper should be studied and put up in place well -structured policies that will support them and further develop the financial sector with the aspirations under the Kenya Vision 2030. Keywords : Financial sector development, Economic growth DOI: 10.7176/RJFA/12-2-01 Publication date: January 31 st 2021

The problem of poverty in the developing countries and what makes Sub-Saharan Africa (SSA) a region with the “highest number of poor people” in the world remains a topical issue that requires serious research attention. Following extant studies, in which the mediating role of financial sector development has not been taken into consideration in their finance- growth and poverty nexus, this study deviates by using two measures of poverty level: absolute and multidimensional poverty level; and at the same time provides comparative analyses at SSA sub-regional communities. Our findings reveal that the effects of inclusive growth on poverty reduction (both absolute and multidimensional level), for most sub-regions in SSA except Central African countries, are positive. While the mediating role of financial sector development appeared to be slightly different with mixed results. In West and Central African countries, the mediating role of the financial sector, though very weak, complements theinclusive growth effects on poverty reduction. On the contrary, financial sector development does not complement inclusive growth when it comes to poverty reduction in South African countries. Also, financial sector development does not complement the absolute poverty reduction effect of inclusive growth in the East African sub-region but the result is otherwise under multidimensional poverty reduction. Therefore, we recommend that financial sector development in most SSA countries should be improved upon through relevant monetary policy that promotes financial innovations, financial sector reforms, efficiency in financial inclusion across the region, and at the same time efforts should be geared toward directing some of the gains in financial sector development to inclusive growth-enhancing activities in southern African sub-region

Despite the increasing focus on global economic development, there remains a gap in understanding the specific impact of financial inclusion, financial development, and the misery index on economic growth within the Asian context. Identifying and analyzing these relationships is crucial for informing effective policy interventions. The lack of a comprehensive understanding of how these variables interact hinders the formulation of targeted strategies to promote sustainable and inclusive economic growth in the region. In the current study, we have investigated the impact of financial development, financial inclusion, urban population and misery index on economic growth in selected Asian economies using panel data from 2004 to 2018. GDP per capita is used as the dependent variable, and financial development, financial inclusion, urban population and misery index are used as explanatory variables. By using a random effect technique, it was found that financial development, financial inclusion, and urban population have boosted financial inclusion. However, the misery index has decreased economic growth in selected Asian economies. It is suggested that these economies must increase financial development and financial services access and availability for more growth. The government must focus on education to increase production and investment in concerned economies. Moreover, the government must control inflation along with unemployment to foster economic growth.

Economic growth, both local and global, is no longer regarded as a measure of a state or country's wealth, this is because economic growth is usually accompanied by inequality, poverty, and joblessness, which becomes a poor measure of a country’s wealth, hence the need for economic growth that is inclusive. This study examines the impact of financial inclusion on inclusive growth in Nigeria from 1990 to 2024 using the Non-Linear Autoregressive Distributed Lag technique; the study utilized insurance and financial services, monetary sector credit to private sector and remittances as measures of financial inclusion while real GDP per capita captures inclusive growth. This study used time series data sourced from the Federal Reserve Economic Data, NBS, CBN database, and WDI with the new growth theory as its theoretical framework. The findings reveal that infrastructural investment and insurance financial services exhibited a significant relationship with RGDP per capita in both the long and short run terms. The long-term analysis established a significant positive relationship which posits that inclusive financial policies contribute positively to GDP per capita, albeit in the long run, while the short run was statistically insignificant, signifying that the immediate effects of financial inclusion might not be prominently observed in increasing GDP per capita. This study highlights potential nuances within the Nigerian economic landscape and suggests that despite the current lack of discernible effects on RGDP per capita in the short-run, financial inclusion initiatives could be instrumental in laying the groundwork for future economic stability at the long run, which will generate a more conducive environment for inclusive growth in Nigeria.

Financial Inclusion and Inclusive Growth in Nigeria: A Critical Appraisal for Evidence Based Policy