Financial repression and financial inclusion in Sub-Saharan Africa using dynamic panel evidence

Abstract

Financial inclusion remains low in many Sub-Saharan African (SSA) countries despite ongoing financial sector reforms, raising concerns about whether prevailing financial policy structures facilitate or hinder inclusive finance. In particular, financially repressive policies including interest rate controls, directed credit allocation, and high reserve requirements may distort financial intermediation and restrict access to formal financial services. This study examines the impact of financial repression on financial inclusion across 41 SSA countries from 2009 to 2023. Employing a dynamic panel framework using two-step system GMM and dynamic common correlated effects (DCCE) estimators to address endogeneity, persistence, and cross-sectional dependence, the findings reveal that financial repression significantly reduces financial inclusion. In contrast, GDP per capita, political stability, employment, mobile subscriptions, and average years of schooling significantly enhance inclusive finance. By providing robust dynamic evidence from SSA, this study contributes to the ongoing debate on financial liberalization. It offers policy insights for designing balanced financial reforms that promote both stability and inclusive access to financial services.