Interactive Effect between Financial Inclusion and Financial Stability in 27 Sub-Saharan African countries

Abstract :

The common consensus is that a well-developed financial system will aid financial intermediation, destroy asymmetric information and enable access to finance for all, if it is inclusive, it will enhance stability and if not, it will threaten stability and undo the very purpose of financial inclusion.?? It is on this premise that this study examined the interactive effect between financial inclusion and financial stability in twenty seven (27) sub Saharan African countries. Error Correction Method (ECM) with General Methods of Moments (GMM) of Arellanon & Bond (1991) were used to analyze the short panel data obtained from the World Bank database. The study found the existence of a bidirectional long run influence between financial stability and financial inclusion by usage for the low, moderate and high stable countries. However financial stability reacts more quickly to temporal shocks in financial inclusion by quality for countries with highly stable financial system than poor and moderate financial system. The study therefore recommended that efforts should be concentrated in developing the financial system to make it more robust and inclusive. This is because a well-developed and inclusive financial system will make deposit rate to increase while at the same time lending rate plunges.