Does Deposit Insurance Promote Financial Inclusion? Evidence from Sub-Saharan Africa

Financial inclusion plays a critical role in economic growth and development, offering policy makers in Sub-Saharan Africa (SSA) a powerful tool to address numerous socio-economic challenges. Despite concerted efforts by both the public and private sectors, financial inclusion in SSA remains relatively low, necessitating the exploration of alternative policy approaches. While deposit insurance is widely recognized for its role in supporting the banking sector, which fosters financial inclusion, its direct relationship with financial inclusion in SSA has not been thoroughly examined in the literature. This study addresses that gap by evaluating the effectiveness of deposit insurance as a policy tool for promoting financial inclusion in SSA. Using panel data extracted from the World Bank Global Findex database (WBGFD) and the World Development Indicators (WBWDI) database, we analyze financial inclusion along access and usage dimensions. The WBGFD provides metrics for new measures of financial inclusion for 2011, 2014, 2017, and 2021, as well as annual data on traditional measures of financial inclusion; while the WBWDI supplies data on other relevant socio-economic variables. Our methodology incorporates test of means, exogenous regression models – fixed effects models (FEM), random effects models (REM) – as well as the system generalized method of moments (GMM) which account for endogeneity in the nexus. Key findings reveal that deposit insurance—measured by the practice of Explicit Deposit Insurance Systems (EDIS) and membership in the International Association of Deposit Insurers (IADI)—significantly promotes financial inclusion across both access and usage dimensions. These effects are robust across traditional and new measures of financial inclusion, and remain statistically significant even after controlling for other policy-tractable drivers. The results demonstrate that the higher levels of financial inclusion observed in EDIS-practicing and IADI-member countries, compared to IDIS-practicing and non-IADI-member countries, are not solely due to other drivers but also reflect the positive impact of deposit insurance itself. Additional drivers that positively influence financial inclusion include economic growth, per capita income, banking sector development, financial sector development, infrastructure (mobile subscriptions), and education duration (years of formal education). Based on these findings, we recommend that SSA countries adopt and deepen the practice of EDIS and consider IADI membership to enhance financial inclusion. These strategies, when combined with efforts to strengthen other drivers, can significantly improve financial inclusion and support broader socio-economic development in the region.