Financial Inclusion and Income Inequality in Sub-Saharan Africa: Taking Socio-Cultural Particularities into Account

According to the United Nations 2030 Agenda for Sustainable Development, financial inclusion has a crucial role to play in achieving sustainable development goals in this case, reducing inequalities and reducing poverty. Certain cultures can be at the root of financial system imperfections and therefore influence financial inclusion and its effect on income inequality. This work analyzes the effect of financial inclusion on income inequalities in sub-Saharan African countries, taking into account cultural particularities. The data cover the period from 2002 to 2015 and are analyzed by the dynamic panel method generalized method of moments (GMM). Our overall sample is made up of 27 countries of sub-Saharan Africa grouped into 4 sub-groups: countries with predominantly Christian obedience, countries with obedience dominated by Islam, countries with French as the official language, and countries with English as official language. The first two are distinguished by the fact that Islam forbids interest-bearing savings and loans. The latter two have known different colonial systems which have forged their attitude to public life differently. Our results show that financial inclusion contributes to reducing income inequality in all the SSA countries considered, and also in the Christian-dominated and French-speaking countries. We found no effect of financial inclusion in Islamic-dominated and English-speaking countries. Similarly, we found evidence of an inverted U-shaped relationship in all the Sub-Saharan African countries considered and in Christian-dominated countries only. These results suggest on the one hand that the socio-cultural aspect has an influence on the relationship between financial inclusion and income inequality and the other hand that financial inclusion may be essential to reduce income inequality in SSA countries, but that it is important to tailor it taking into account the cultural, religious, political, institutional, and structural specificities of each country’s economy to have even more significant effects. Given this interference of socio-cultural and political factors on financial inclusion and its effect on income inequality, in addition to ensuring an effective regulatory system and a sound institutional framework, financial and public authorities should capitalize on the cultural and religious fiber to raise awareness on the use of financial products and services in order to improve financial access and its effect on wealth redistribution.