Digital Financial Services, Financial Inclusion And Economic Development Of Sub – Saharan Africa

EMMANUEL CHIJIOKE | 164 pages (61510 words) | Dissertations
Banking and Finance | Co Authors: NWADIKE



This study investigated the effect of digital financial services, financial inclusion and economic development in Sub-Saharan Africa (SSA). Economic development was proxied by human capital development index (HDI) while digital financial services was proxied by automated teller machine (ATM) volume transactions, point of sale volume of (POS) transactions, mobile banking service (MBS) volume transactions, number of ATMs available and number of commercial banks. Five SSA countries, namely, Nigeria, Ghana, Uganda, Cabo Verde and Kenya were chosen for the study. The data used for the study spanned from 2009 to 2020. The study was anchored on the Technology Acceptance Theory which is based on the belief that improvement in the economy is enhanced through using particular new technology and information system in business transactions. Panel unit root test carried out using different criteria showed that the data set were largely stationary at levels. Consequently, the fixed effects model was used for the analysis based on the outcome of the Hausman test. The results showed that the volume of ATM transactions Panel unit root test carried out using different criteria showed that the data set were largely stationary at levels. The results showed that the volume of ATM transactions and the number of ATMs had negative effect on HDI, implying that the higher the ATM usage and number of ATM available the lower economic development in SSA. The results of POS volume transactions, mobile banking volume transactions and number of commercial banks had increasing effect on economic development in SSA. Of all the independent variables, the volume of ATM transactions, POS transactions, mobile banking transactions and number of commercial banks were the most significant while number of ATM available was the only non-significant variable. The negative and significant effect of volume of ATM transactions, this study recommends that banks should ensure that ATMs provide convenience for customers by installing more of them and making them accessible and usable while also considering the rate charged for rendering such services.  Consequently, the study concluded that digital financial services is a long road which SSA needs to travel and make the economy significantly successful.










Cover page                                                                                                                              i

Title Page                                                                                                                                ii

Certification                                                                                                                            iii

Declaration                                                                                                                              iv

Dedication                                                                                                                              v

Acknowledgements                                                                                                                vi

Table of content                                                                                                                      vii

List of Tables                                                                                                                          viii

List of Figures                                                                                                                         ix

Abstract                                                                                                                                  x



1.1  Background of the Study                                                                                                 1

1.2 Statement of the Problem                                                                                                 5

1.3 Objectives of the Study                                                                                                    6

1.4 Research Questions                                                                                                           7

1.5 Research Hypotheses                                                                                                        8

1.6 Scope of the Study                                                                                                           8

1.7 Significance of the Study                                                                                                 9

1.8 Limitations of the Study                                                                                                   11



2.1 Conceptual Framework.                                                                                                    12

2.1.1 Concept of Digital Financial Services                                                                           12

2.1.2 Information On Selected SSA Countries' Digital Financial Services

and Financial Inclusion                                                                                               14 Nigeria                                                                                                                        14 Ghana                                                                                                                          15 Kenya                                                                                                                          15   Uganda                                                                                                                     17 Cabo Verde                                                                                                                 18

2.1.3 Digital Financial Services                                                                                              19

2.1.4    Digital Financial Services Channels                                                                            19 Automated Teller Machine (ATM)                                                                             20 Mobile Banking Services                                                                                            21 Point of Sale. (POS)                                                                                                   23 Short Message Service (SMS Banking)                                                                      24 Internet Banking Service                                                                                            24 Unstructured Supplementary Service Data (USSD)                                                  25 Digital Payment System                                                                                             25

2.1.5 The World Development Report Identifies Innovations in Digital Payments.             27

2.1.6 How Does Digital Payments Work?                                                                              28

2.1.7 Merits of Digital Payments.                                                                                           28

2.1.8 Demerits of Digital Payments                                                                                        29

2.1.9 Electronic Banking System                                                                                            30

2.1.10 Positive Relationship Between Digital Finance and Financial Inclusion                    41

2.1.11 Negative Effect Between Digital Finance and Financial Inclusion.                           42

2.1.12 The Pandemic and Digital Financial Services                                                              43

2.1.13  Impact of Covid -19 Pandemic on Digital Financial Inclusion.                                 45

2.1.14 Overview of Digital Financial Inclusion                                                                      46

2.1.16  The Role of Digital Financial Inclusion in Meeting the Sustainable

Development Goals (SDGS)                                                                                      49

2.1.17 Financial Inclusion                                                                                                       49

2.1.18 Financial Inclusion Determinants                                                                                57

2.1.19  Promoting Financial Inclusion                                                                                    59

2.1.20 Components of Financial Inclusion                                                                             60

2.1.21 Hierarchy of Financial Needs Satisfaction Demonstrating Improved Financial

Inclusion with Higher Degree of Inclusion                                                                61

2.1.22 Benefits of Financial Inclusion                                                                                    63

2.1.23 Contributions of Microfinance Banks (MFB) To Financial Inclusion             65

2.1.24 Poverty and Financial Inclusion                                                                                  69

2.1.25 Financial Inclusion and Unemployment                                                                      69

2.1.26 How New Technologies Create a Pathway to Financial Inclusion                              70

2.1.27 Financial Inclusion Solves Societal Challenges                                                           71

2.1.28 Financial Inclusion and Bank Stability                                                                        72

2.1.29 Financial Inclusion and Digital Finance Services                                                        73

2.1.30 Financial Inclusion and Economic Growth                                                                 74

2.1.31 The Relationship Between Financial Inclusion and Economic Development             75

2.1.32 The Concept of Economic Growth and Development                                                            76

2.1.33 The Relationship Between Financial Inclusion and Human Development                 79

2.1.34 Financial Inclusion and Human Development                                                             82

2.1.35 Economic Development                                                                                               85

2.1.36  Review of Some Selected Economic Development Variables                                   86

2.1.38 Human Development                                                                                                   92

2.2 Theoretical Review                                                                                                           95

2.2.1 Technology Acceptance Theory                                                                        95

2.2.2 Diffusion of Innovation Theory                                                                                    95

2.2.3 Financial Intermediation Theory                                                                                    96

2.2.4 Theory of Financial Innovations                                                                                    96

2.2.5 Bank-Led Theory                                                                                                           97

2.3 Empirical Review                                                                                                              98

2.4 Gap in Literature                                                                                                               149



3. 1 Research Design                                                                                                              152

3.2 Nature and Sources of Data                                                                                             152

3.3 Model Specification                                                                                                          153

3.4 Description and Justification of Model Variables                                                            155

3.4.1 Dependent Variable                                                                                                       155

3.4.2 Independent Variables                                                                                                   155

3.4.3 Operationalization of Variables                                                                                     157

3.5 Target Population                                                                                                              158

3.6 Sample Size                                                                                                                       158

3.7 Techniques of Data Analysis                                                                                            158

3.7.1 Trend Analysis                                                                                                               158

3.7.2 Descriptive Statistics                                                                                                     159

3.7.3 Stationarity Tests                                                                                                           159

3.7.4 Multicollinearity Test                                                                                                     160

3.7.5 Fixed Effects (FE) and Random Effects (RE) Models                                                             160

3.7.6 Hausman Test                                                                                                                162



4.1 Presentation of Data                                                                                                         163

4.2 Trend Analysis of Data                                                                                                     166

4.2.1 Trend of Human Capital Development Index (Hdi) Among Selected Countries

of SSA                                                                                                                                    166

4.2.2 Trend of Volume of Automated Teller Machine (ATM) among Selected

Countries of SSA                                                                                                        167

4.2.3 Trend of POS in SSA Countries Among Selected Countries of SSA.

4.2.4 Trend of Volume of Mobile Transactions (MBS) Among Selected Countries of SSA.169

4.2.5 Trend of Number of Automated Teller Machines Per 100,000 Adults (NATM)

among Selected Countries of SSA                                                                             170

4.2.6 Trend of Number of Number of Micro Finance Bank Per 100,000 Adults (NCOB)

among Selected Countries of SSA                                                                             171

4.3 Descriptive Statistics                                                                                                        171

4.4 Pre-Estimation Tests                                                                                                         173

4.4.1 Unit Root Test                                                                                                               173

4.4.2 Correlation Analysis and Multicollinearity Test                                                            175

4.5 Panel Regression Estimation                                                                                             176

4.5.1 Pooled Model                                                                                                                176

4.5.2 Fixed Effects Model                                                                                                      178

4.5.3 Random Effects                                                                                                             180

4.5.4 Choosing The Best Model                                                                                             181

4.5.5 Panel Least Squares Diagnostics                                                                                   182

4.6 Heterogeneity in the Deployment of Digital Financial Services among the

SSA Countries                                                                                                               184

4.7 Heterogeneity and Contribution of Digital Financial Services, Financial Inclusion

Among the SSA Countries using Correlation                                                             185

4.7 Test of Hypotheses                                                                                                           187

4.8  Discussion of Findings                                                                                                     188

4.9.1 The Effect of ATM Transaction Volume on Economic Development in SSA             189

4.9.2 The Effect of POS Transaction Volume on Economic Development in SSA               190

4.9.3 The Effect of Mobile Transaction Volume on Economic Development in SSA           191

4.9.4 The Effect of Number of ATMS on Economic Development in SSA                          191

4.9.5 The Effect of Number of Commercial Banks on Economic Development in SSA       192


5.1 Summary of Findings                                                                                                       193

5.2 Conclusion                                                                                                                        194

5.3 Recommendations                                                                                                            194

5.4 Contribution to Knowledge                                                                                              196







Table 2.1: The Comparison Between Economic Growth and Economic Development.        78

Table 3.1 Summarizes The Operationalization of the Model Variables                                  157

Table 3.2: Operationalization of Variables                                                                             157

Table 4.1: Panel Data                                                                                                              163

Table 4.2: Descriptive Statistic                                                                                               172

Table 4.3: Summary of Panel Unit Root Test                                                                         174

Table 4.4: Correlation Analysis                                                                                               175

Table 4.5: Variance Inflation Factor (VIF)                                                                             176

Table 4.6: Panel Regression (Pooled)                                                                                     177

Table 4.7. Fixed Effects                                                                                                         179

Table 4.8: Random Effects                                                                                                     180

Table 4.9: Hausman Test                                                                                                         181

Table 4.10: Residual Cross-Section Dependence Test Results                                               182

Table 4.11: The Redundant Fixed Effect Test                                                                       183

Table 4.12 Shows The Heterogeneity and Contribution of Digital Financial Services,

Financial inclusion among the SSA Countries Using Correlation                              185

Table 4.13: Hypotheses Testing                                                                                              188






Figure 2.1: A Flow Chart Showing Mobile Banking Services                                               22

Figure 2.2:  Flowchart for Illustrating the Significance of Electronic Banking In

Various A Applications                                                                                              32

Figure 2.3:  Financial Inclusion Parameters and Measurement Flowchart                             56

Figure 2.4: Access to Financial Services                                                                                 61

Figure 2.5:  A Typical SSA Business Retailer's Hierarchy of Financial Needs Satisfaction 62

Fig.2.6 Causation Between Financial Inclusion and Human Development

A Conceptual Framework                                                                                           81

Figure 2.7: The Human Development Index Flow Chart Indicating Dimensions,

Indicators, and Dimension Index                                                                               94

Fig. 4.1: Trend of Human Development Index (HDI) among Selected Countries of SSA   166

Fig. 4.2: Trend of Automated Teller Machine Transactions (ATM) Among Selected

Countries of SSA                                                                                                        167

Fig. 4.3: Trend of Point of Sale (POS) Among Selected Countries of SSA                          168

Fig. 4.4: Trend of Mobile Transaction (Mobile) among Selected Countries of SSA             169

Fig. 4.5: Trend of Number of Automated Teller Machine (NATM) among Selected Countries \

of SSA                                                                                                                                    170

Fig. 4.6: Trend of Number of Microfinance Banks (NCOB) among Selected Countries of SSA171

Figure 4.7: Normal Distribution Histogram                                                                            184

Figure 4.8: Level of Financial Digitalization in Sub-Saharan Africa among

Selected SSA Countries                                                                                             184


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EMMANUEL, C (2023). Digital Financial Services, Financial Inclusion And Economic Development Of Sub – Saharan Africa. Retrieved Nov 30, 2023, from

MLA 8th

CHIJIOKE, EMMANUEL. "Digital Financial Services, Financial Inclusion And Economic Development Of Sub – Saharan Africa", 27 Jul. 2023, Accessed 30 Nov. 2023.


CHIJIOKE, EMMANUEL. "Digital Financial Services, Financial Inclusion And Economic Development Of Sub – Saharan Africa".,, 27 Jul. 2023. Web. 30 Nov. 2023. < >.


CHIJIOKE, EMMANUEL. "Digital Financial Services, Financial Inclusion And Economic Development Of Sub – Saharan Africa" (2023). Accessed 30 Nov. 2023.

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