Financial development, financial inclusion and welfare dynamics in sub-Saharan Africa
Thesis (PhD)--Stellenbosch University, 2017.
ENGLISH SUMMARY : Over two decades of post reforms, the financial system of many sub-Saharan African countries remained underdeveloped and highly exclusive with only 34% of adults 15 years and above having a basic bank account. Nevertheless, sub-Saharan Africa has experienced robust growth, on average 4.8% per annum over the past 15 years surprisingly with widening income inequality and sluggish decline in headcount poverty ratio. This unfolding evidence challenged conventional thinking about the role of finance on growth and welfare. However, there is a shortage of empirical evidence linking financial development and financial inclusion to welfare. Knowledge of this relationship is important to shape policy thinking on how financial reforms can help to redress poverty and income inequality in sub-Saharan Africa. The purpose of this study is to fill this knowledge gap by examining the relationship between financial development, financial inclusion and welfare dynamics in sub-Saharan Africa. The thesis is structured into four main chapters, a descriptive chapter and three empirical chapters. The evidence from the descriptive analysis showed that financial inclusion, financial stability, financial integrity and consumer financial education are interrelated and under a suitable balance re-enforces each other. It also emerges that the level of financial intermediation in sub-Saharan Africa is low. As a result, huge unmet demands for credit and saving facilities exist across all regions. By regions, the rate of formal saving and borrowing in Southern, Eastern and West African countries is two times higher than the rate in French West and Central African countries. Overall, the level of financial inclusion in French West and Central Africa is the lowest in sub-Saharan Africa. The results from Chapter 3 revealed that income inequality will increase at the early stages of financial development but the positive trend reverses to negative as the financial sector reaches a higher stage of development – inverted u-shape. Specifically, financial sector might lend more to the rich and well-connected elites at some levels of financial development especially when institutions are weak, but as the system develops, more people have access and resultant effects tickles down to the lower income earners, hence income inequality starts to reduce. Finally, income inequality has some links with GDP per capita – increases with lower GDP per capita and declines as GDP per capita grows, translating into an inverted u-shape. Empirical evidence from Chapter 4 suggests that financial inclusion has both positive and negative relationships with welfare, depending on the aspect of financial inclusion and the indicator of welfare used. First, account ownership, formal loan and saving have a positive relationship with human development index but the relationship with electronic payment is mixed. Secondly, health insurance and loan to pay school fees reduces headcount poverty whiles, account ownership, formal loan and health insurance reduces under-five mortality rate per 1000 live birth. Finally, formal account use for business purposes, electronic payment and formal loan increases income inequality at least in the short run. These results reflect the prevailing robust growth and rising levels income inequality in sub-Saharan Africa. Finally, evidence from Chapter 5 revealed that financial inclusion has a positive relationship with assets ownership. The results suggests that a one-unit change in financial inclusion (credit, monthly saving and insurance) can increase assets ownership by 21% at the 10th quantile of the conditional assets distribution for users of financial services compared to non-users holding other factors constant. For all the aspects of financial inclusion analysed, the magnitude of the response to a unit increase in financial inclusion at the 10th, 20th and 30th quantiles is higher than the response at the median quantile. This suggests that financial inclusion and assets building programmes can have a substantial effect at the bottom of the assets distribution. Hence, this evidence provides a good case for a progressive assets building social welfare for the poor and low-income families in South Africa. In summary, these results showed that French speaking west and Central African countries have lower levels of financial inclusion compared to other regions in sub-Saharan Africa. Furthermore, the emerging evidence suggest that financial development increases income inequality in the group of African countries studied and that low GDP per capita also increase income inequality. Finally, evidence also revealed that financial inclusion exerts some positive influence on welfare with exception of income inequality and that asset building social welfare programmes can be used to complement the income transfer approach to poverty reduction.
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