Inclusive financial development and banking sector stability in Africa: Is there a bi-causal relationship?

This study examines the bi-causal relationship between inclusive finance and banking sector stability in Africa. The study employs the two-step system GMM and the Dumitrescu and Hurlin (2012) Granger Non-Causality Test on annual data of 41 African countries over the period, 2004-2022. The results show that banking stability Granger-causes inclusive finance and vice versa. Thus, past values of stability influences inclusive finance and vice versa, thereby suggesting a bidirectional relationship between them. This offers basis for novel contribution to theory development on the bi-causal relationship between inclusion and stability. Policy makers should design policies that promote inclusion and safeguard stability.