Exploring the Nexus Between Technical Efficiency of African Banks and Financial Inclusion: Evidence From Stochastic Frontier and Dynamic Panel Models on the Interaction of Digital Infrastructure and Institutional Quality
DOI:
https://doi.org/10.51137/wrp.ijarbm.458Keywords:
Financial Inclusion, Bank Efficiency, Institutional Quality, Competition, Inclusive Growth, AfricaAbstract
Financial inclusion has gained prominence as a critical driver of inclusive growth, poverty reduction, and financial stability in Africa. However, its interplay with bank efficiency, competition, and institutional quality remains underexplored in a continent marked by structural diversity. This study employs panel data from 45 African countries covering the period 2000–2023 to investigate these relationships. Using system-GMM estimation to address potential endogeneity and dynamic panel bias, the analysis reveals that financial inclusion significantly enhances inclusive growth and poverty alleviation, especially when reinforced by strong institutional quality and efficient banking systems. The results further show that moderate bank competition fosters efficiency and innovation, while excessive competition can undermine financial stability without robust regulatory oversight. The findings have important implications for policymakers, suggesting that integrated strategies, promoting digital financial services, strengthening institutional frameworks, and balancing competition with prudential regulation, are essential to harnessing financial inclusion as a catalyst for sustainable development. Recommendations include scaling up digital financial infrastructure, enhancing financial literacy, and instituting governance reforms to support inclusive finance in Africa.
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