Effects of Financial Innovation on Growth in Sub-Saharan Africa: An Analysis of The Role of Financial Inclusion

The objective of this article is to determine whether financial inclusion plays a role in the relationship between financial innovation and economic growth in sub-Saharan African (SSA) countries. The study covers a sample of 35 sub-Saharan African countries. The study period spans from 2000 to 2017. To achieve this objective, our methodology relies on the construction of two indices: a financial innovation index and a financial inclusion index. We use Multiple Factor Analysis (MFA), which allows us to best summarize the information contained in the entire dataset into a small number of elements. We also employ various econometric techniques, namely simple panel estimation and the Generalized Method of Moments (GMM) system to mitigate endogeneity bias. The results of the analysis show that the development of innovations in the banking sector promotes financial inclusion. Furthermore, financial innovations are essential for economic performance in sub-Saharan Africa (SSA), but their impact depends on financial inclusion. Based on the findings, it is clear that governments in SSA countries and financial sector actors can effectively leverage the proliferation of financial innovations to boost access to and use of financial products. Therefore, it is recommended that governments in SSA countries invest in appropriate technological infrastructure that the banking sector can use to provide banking services, a key element in promoting financial inclusion and thereby optimizing economic growth.

Keywords:Financial Innovations, Economic Growth, Financial Inclusion, Generalized Method of Moments, Sub-Saharan Africa.