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The Impact of Digital Financial Inclusion and Bank Competition on Bank Stability in Sub-Saharan Africa

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  • Tough Chinoda

    (Department of Economics, University of Fort Hare, Private Bag X9083, East London 5200, South Africa)

  • Forget Mingiri Kapingura

    (Department of Economics, University of Fort Hare, Private Bag X9083, East London 5200, South Africa)

Abstract

The last few years have witnessed a rapid development in digital finance that may threaten the manner in which traditional financial services are being used. It opens up new opportunities for low-income groups and small businesses that have limited or no access to formal financial services. Thus, digital financial inclusion plays a vital role in boosting a country’s financial inclusion, fulfilling some sustainable development goals and achieving higher economic growth. This study builds on a new measure of digital financial inclusion to examine the impact of digital financial inclusion and bank competition on bank stability in Sub-Saharan Africa for the period 2014 to 2020 using the two-step System Generalised Method of Moments. An index of digital financial inclusion, z-score, Herfindahl–Hirschman Index (HHI), and non-performing loans were used as data variables. The study findings reveal that digital financial inclusion has a significant positive relationship with bank stability (z-score) and a negative relationship with non-performing loans. The study also found a significant negative effect of bank competition (HHI) on bank stability in line with the competition-fragility view. Policymakers should ensure digital financial literacy for all since it feeds into bank stability and also reduces bank insolvency. They should also find ways of enhancing bank competition which reduces non-performing loans and bank insolvency. On practical implications, the study calls for strategic measures to preserve bank stability, such as complementing digital financial inclusion with financial literacy and enhancing bank competition.

Suggested Citation

  • Tough Chinoda & Forget Mingiri Kapingura, 2023. "The Impact of Digital Financial Inclusion and Bank Competition on Bank Stability in Sub-Saharan Africa," Economies, MDPI, vol. 11(1), pages 1-12, January.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:1:p:15-:d:1026290
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    References listed on IDEAS

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    Cited by:

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    3. Liang, Yixin & Wei, Ran & Duan, Dingkang, 2025. "Digital financial development and commercial bank stability," International Review of Economics & Finance, Elsevier, vol. 97(C).
    4. Afef Bouattour & Maha Kalai & Kamel Helali, 2024. "The non-linear relationship between ESG performance and bank stability in the digital era: new evidence from a regime-switching approach," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-17, December.
    5. Zakaria Elouaourti & Aomar Ibourk, 2024. "Unveiling the drivers of Africa's digital financial inclusion journey," African Development Review, African Development Bank, vol. 36(1), pages 84-96, March.
    6. Md. Abdul Halim & Syed Moudud-Ul-Huq & Farid Ahammad Sobhani & Ziaul Karim & Zinnatun Nesa, 2023. "The Nexus of Banks’ Competition, Ownership Structure, and Economic Growth on Credit Risk and Financial Stability," Economies, MDPI, vol. 11(8), pages 1-18, July.
    7. Dhahri, Sabrine & Omri, Anis & Mirza, Nawazish, 2024. "Information technology and financial development for achieving sustainable development goals," Research in International Business and Finance, Elsevier, vol. 67(PA).
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