Financial Inclusion, Financial Literacy And Inclusive Growth In Africa

The aim of this study is to investigate the nexus between financial inclusion, financial literacy and inclusive growth in Africa. The study uses a modified version of Sarma (2008) approach to compute an index of financial inclusion and inclusive growth. The system-generalized methods of moments is employed to analyze the link between financial inclusion and inclusive growth. Ordinary Least Squares with robust standard errors is employed to investigate the link between financial literacy and inclusive growth. Lastly, the causal step and bootstrap approaches are used to investigate how financial institutions mediate between financial literacy and financial inclusion. The study finds that the extent of financial inclusion remains low relative to indices that have been computed using earlier data. Also, the level of inclusive growth is low in Africa. In addition, the access dimension of financial inclusion has a significant positive impact on the participation dimension of inclusive growth. Financial access is inversely related to poverty although not statistically significant. Further, the usage dimension shows a positive but insignificant impact on both the participation and benefit dimensions of inclusive growth. It also finds that financial literacy has a positive and statistically significant impact on participation dimension of inclusive growth. Finally, commercial banks and other financial institutions mediate between financial literacy and one or more of the financial inclusion indicators of account ownership, savings and bank credit. To conclude, this study provides evidence that for inclusive growth to be scaled up in Africa, financial inclusion needs to be expanded. One way to do this is to embark on deliberate financial literacy programme. Low inclusive growth in Africa gives indication that there is low participation of the working population in the growth process and this weakens the base of economic activities that spurs growth.