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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.
    2. Sawadogo, Relwendé & Semedo, Gervasio, 2021. "Financial inclusion, income inequality, and institutions in sub-Saharan Africa: Identifying cross-country inequality regimes," International Economics, Elsevier, vol. 167(C), pages 15-28.
    3. 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.
    4. Ahamed, M. Mostak & Ho, Shirley J. & Mallick, Sushanta K. & Matousek, Roman, 2021. "Inclusive banking, financial regulation and bank performance: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 124(C).
    5. Xu, Xiaoyan, 2020. "Trust and financial inclusion: A cross-country study," Finance Research Letters, Elsevier, vol. 35(C).
    6. Koomson, Isaac & Danquah, Michael, 2021. "Financial inclusion and energy poverty: Empirical evidence from Ghana," Energy Economics, Elsevier, vol. 94(C).
    7. Goksu Aslan & Ms. Corinne C Delechat & Ms. Monique Newiak & Mr. Fan Yang, 2017. "Inequality in Financial Inclusion and Income Inequality," IMF Working Papers 2017/236, International Monetary Fund.
    8. 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.
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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).
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    3. 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.
    4. Heyert, Axelle & Weill, Laurent, 2024. "Does distrust in banks reduce bank risk-taking?," Finance Research Letters, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Bank trust; Financial inclusion; Discouraged borrower; Gender; Ghana;
    All these keywords.

    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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