The impact of bank competition on financial inclusion in Lesotho: An empirical analysis

• Bank competition positively impacts financial inclusion in Lesotho. • Lerner Index used to measure competition in the banking sector. • Usage of financial services improves with increased competition. • Affordability of financial services remains unaffected by competition. • Findings guide policymakers to enhance financial sector competitiveness. This paper explores the impact of bank competition on financial inclusion in Lesotho from October 2013 to May 2019. Financial inclusion is evaluated through two key indicators: financial services' usage and affordability. The study employs bank-level data and utilises the Cross-Sectional Autoregressive Distributed Lag (CS-ARDL) technique for estimation, which is advantageous due to its capacity to present short-term and long-term results alongside the adjustment term. This method is particularly beneficial for comparing various periods. The primary objective of this paper is to determine whether bank competition influences financial inclusion, with competition measured using the Lerner index. The findings indicate consistency in both the short and long term. However, in terms of affordability, bank competition appears insignificant, as other factors such as income, education level, and marital status; also play crucial roles in determining affordability. To the best of the researcher’s knowledge, this is the first study to examine the effects of bank competition on financial inclusion in Lesotho using the CS-ARDL model. The insights gained from this research may assist policymakers in directing incentives and formulating policies aimed at enhancing competition within the financial sector as a means to promote financial inclusion.