Banking sector stability, digital financial inclusion, and sustainable development in Sub-Saharan Africa

Abstract

Despite evidence on the importance of banking sector stability and sustainable development, little is known about the role of digital financial inclusion (DFI) in the relationship between banking sector stability and sustainable development. Using panel data of 28 Sub-Sahara Africa countries (SSA) for the period 2012-2021, this study analyses the effect of banking sector stability on sustainable development in SSA as well. The study also examines the effect of digital financial inclusion on sustainable development as well as the role digital financial inclusion performs in the nexus between banking sector stability and sustainable development. The study uses Two-Step System Generalised Method of Moment technique to estimate the results with the control of inflation, research and development, political instability, inequality and real interest rate. The study discovered that banking sector stability has a significant positive and negative relationship with sustainable development, depending on the indicator used to measure stability. On various dimensions, banking sector stability had a negative influence on social sustainability, a positive impact on economic sustainability, and environmental sustainability. It was also revealed that digital financial inclusion has a significant positive link with sustainable development in SSA. Additionally, the findings revealed that DFI enhances the contribution of banking sector stability to sustainable development. The study recommends that governments and policymakers in various SSA regions prioritise strengthening banking sector regulations and promoting digital financial inclusion through investments in infrastructure, technology, education, and incentives for all stakeholders.