Effects of financial inclusion on financial stability: evidence from SSA countries

Abstract

What is the relationship between financial inclusion and financial stability in Sub-Saharan Africa? While prior studies offer mixed evidence, few have explored this link across the region using comprehensive methods. Drawing on data from 37 countries between 2005 and 2019, this study examines how access to financial services affects the stability of the banking sector. We apply dynamic panel techniques that account for cross-country interdependence and heterogeneity, including models that capture effects across different levels of financial stability. We find that greater financial inclusion, especially through expanded bank branch networks, enhances financial stability, particularly in low-income and financially vulnerable countries. Moreover, past financial stability significantly predicts current stability, highlighting the importance of continuity in sound financial systems. These findings suggest that inclusive financial systems can serve as a stabilizing force, and that targeted policies, such as improving financial literacy and expanding access in underserved areas, can strengthen resilience across the region.