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Trust in banks, financial inclusion and the mediating role of borrower discouragement

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  • Koomson, Isaac
  • Koomson, Paul
  • Abdul-Mumuni, Abdallah

Abstract

The link between bank trust and financial inclusion remains less explored despite the recent emphasis on financial inclusion in the midst of significant declines in bank trust across the globe. From an emerging country perspective, we examine the bank trust – financial inclusion nexus and the mediating role of borrower discouragement, using data extracted from a comprehensive individual/household level survey in Ghana. After addressing endogeneity, we find that, overall, financial inclusion among those who have trust in banks is 34.3 percentage points higher, compared to those with no trust. This finding is consistent across three different methods of addressing endogeneity. Higher levels of financial inclusion associated with bank trust are more evident among males and urban-located residents. Further analysis revealed that the link between bank trust and financial inclusion is mediated by the discouraged borrower syndrome. It is recommended that financial institutions make conscious efforts to foster client trust which has the capability to reduce borrower discouragement and improve financial inclusion.

Suggested Citation

  • Koomson, Isaac & Koomson, Paul & Abdul-Mumuni, Abdallah, 2023. "Trust in banks, financial inclusion and the mediating role of borrower discouragement," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 1418-1431.
    • Handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:1418-1431
    DOI: 10.1016/j.iref.2023.07.090
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    References listed on IDEAS

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    1. Edward Martey & Prince M. Etwire & Isaac Koomson, 2022. "Parental Time Poverty, Child Work and School Attendance in Ghana," Child Indicators Research, Springer;The International Society of Child Indicators (ISCI), vol. 15(4), pages 1489-1515, August.
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    6. Koomson, Isaac & Danquah, Michael, 2021. "Financial inclusion and energy poverty: Empirical evidence from Ghana," Energy Economics, Elsevier, vol. 94(C).
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    10. Kon, Y & Storey, D J, 2003. "A Theory of Discouraged Borrowers," Small Business Economics, Springer, vol. 21(1), pages 37-49, August.
    11. Isaac Koomson & Renato A. Villano & David Hadley, 2020. "Intensifying financial inclusion through the provision of financial literacy training: a gendered perspective," Applied Economics, Taylor & Francis Journals, vol. 52(4), pages 375-387, January.
    12. Isaac Koomson & Renato A. Villano & David Hadley, 2020. "Effect of Financial Inclusion on Poverty and Vulnerability to Poverty: Evidence Using a Multidimensional Measure of Financial Inclusion," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 149(2), pages 613-639, June.
    13. Isaac Koomson & Samuel Kobina Annim & James Atta Peprah, 2016. "Loan refusal, household income and savings in Ghana: a dominance analysis approach," African Journal of Economic and Sustainable Development, Inderscience Enterprises Ltd, vol. 5(2), pages 172-191.
    14. Kebede, Jeleta & Selvanathan, Saroja & Naranpanawa, Athula, 2021. "Foreign bank presence, institutional quality, and financial inclusion: Evidence from Africa," Economic Modelling, Elsevier, vol. 102(C).
    15. Alberto Alesina & Ekaterina Zhuravskaya, 2011. "Segregation and the Quality of Government in a Cross Section of Countries," American Economic Review, American Economic Association, vol. 101(5), pages 1872-1911, August.
    16. Xu, Qiao & Fernando, Guy D. & Tam, Kinsun, 2019. "Trust and firm performance: A bi-directional study," Advances in accounting, Elsevier, vol. 47(C).
    17. Isaac Koomson & Simplice A. Asongu & Alex O. Acheampong, 2023. "Financial inclusion and food insecurity: Examining linkages and potential pathways," Journal of Consumer Affairs, Wiley Blackwell, vol. 57(1), pages 418-444, January.
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    Cited by:

    1. Taylor, Daniel & Osei-Tutu, Francis & Awuye, Isaac S., 2024. "The role of accounting standards in financial inclusion," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    2. Mapenzi Siakalima & Austin Mwange, 2025. "Financial Decision Behaviour and Financial Well-Being Among Women in Business in Zambia: A Comparative Study of Lusaka and Mumbwa Districts," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(14), pages 1460-1477, June.
    3. Jackowicz, Krzysztof & Kozłowski, Łukasz & Wnuczak, Paweł, 2024. "Do local differences in trust affect bank lending activities?," Finance Research Letters, Elsevier, vol. 61(C).
    4. Daniel Bamfo, 2024. "Unleashing Ghana’s Banking Sector Might: A Comprehensive Analysis of Contributions, Competitiveness, Challenges and Policy Recommendations," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(3s), pages 4481-4489, October.
    5. Heyert, Axelle & Weill, Laurent, 2024. "Does distrust in banks reduce bank risk-taking?," Finance Research Letters, Elsevier, vol. 68(C).
    6. Heyert, Axelle & Weill, Laurent, 2025. "Trust in banks and financial inclusion: Micro-level evidence from 28 countries," Economic Systems, Elsevier, vol. 49(1).
    7. repec:bjc:journl:v:12:y:2025:i:10:p:1234-1248 is not listed on IDEAS
    8. Anamaria MIȘA & Kamer-Ainur AIVAZ, 2025. "Impact Of Training, Trust And Customer Satisfaction On The Reputation Of Banks In Romania," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 20(1), pages 125-141, April.
    9. Tao, Miaomiao & Lin, Boqiang & Silva, Emilson, 2024. "China's household's energy poverty mitigation: An inclusive finance perspective," Energy, Elsevier, vol. 313(C).

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    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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