Financial inclusion, institutional quality, and welfare in Sub-Saharan Africa

Financial inclusion has emerged as a critical driver of sustainable development by improving access to financial services and enhancing human well-being. This study investigates the relationship between financial inclusion, institutional quality, and welfare using panel data for 32 SSA countries covering 2011, 2014, 2017, and 2021. Principal component analysis was employed to develop a composite institutional quality index and a multidimensional financial inclusion index with access, usage, and quality dimensions. To account for serial correlation and heteroskedasticity, the Feasible Generalized Least Squares (FGLS) estimator was employed, complemented by Panel-Corrected Standard Errors and Driscoll–Kraay estimators for robustness. The empirical findings indicate that the composite financial inclusion displays a positive and statistically significant association with welfare. Disaggregated estimates demonstrate that while the financial access and usage dimensions exhibit strong, positive, and statistically significant relationships with welfare, the quality dimension exerts a positive but statistically insignificant association, pointing to latent structural market frictions. Institutional quality also demonstrates a positive and significant relationship with welfare, suggesting that stronger governance structures enhance the welfare gains derived from financial systems. Conversely, rapid population growth constrains welfare improvements, whereas final consumption expenditure contributes positively. The study findings underscore that that strengthening financial inclusion alongside institutional reforms is essential for achieving inclusive and sustainable welfare improvements in Sub-Saharan Africa. The findings also provide important policy insights for governments seeking to accelerate progress toward the Sustainable Development Goals through inclusive financial sector development.