Digitalization and Financial Inclusion in Sub-Saharan African Countries

Abstract

Financial inclusion (FI) has gained increased academic and policymaker attention in recent years, however, the effect of digitalization on financial inclusion has not sufficiently been undertaken. Hence, this study examined digitalization's effect on financial inclusion, using Sub-Saharan African countries data, covering the period 2005- 2021. To conduct this study, a panel dataset covering Sub-Saharan African countries was used. Principal Component Analysis (PCA) was used in computing the indicators of the financial index from its sub-indices of access, usage and quality indicators, while the System Generalised Methods of Moments (SysGMM) was used to confirm the effect of digitalization on financial inclusion in Sub-Saharan Africa. The results revealed that there was a long-run significant positive effect of digitalization on consumers’ financial inclusion in SSA. The results also revealed that the coefficient of per capita GDP was significant and positive in the short run but becomes insignificant in the long run. Consequently, digitalization will have a positive effect on consumers’ financial inclusion in SSA countries in the long run, provided good policy implementation are put in place which will culminate in the democratization of financial services, and increased social welfare and economic growth. Also, it will enable the government in reaching the poor people residing in remote areas, and digital literacy will be enhanced. Policy makers and digital financial service providers of the SSA countries can leverage the study’s findings to improve the frontier of financial inclusion in their countries.