Financial Stability, Macroeconomic Fundamentals and Financial Inclusion in COMESA: A Composite Index Approach

Purpose: This research investigates the macroeconomic and institutional drivers of financial inclusion in 17 COMESA member states between 2007 and 2022, with a particular focus on the role of financial stability, institutional quality and financial system characteristics in an integrated approach. &Design/Methodology/Approach: The study develops composite indicators for financial inclusion, financial stability, and institutional quality using principal component analysis. It uses panel-corrected standard errors as the primary estimator and feasible generalised least squares as the robust estimator, accounting for cross-sectional dependence and heterogeneity.Findings: The findings reveal that financial stability, economic growth, domestic credit to the private sector, trade openness and Islamic banking have a positive impact on financial inclusion. By contrast, gross fixed capital formation and fixed broadband subscriptions are negatively associated with inclusion due to structural and infrastructure issues.Implications/Originality/Value: This research offers policy implications for COMESA, highlighting the importance of financial stability, credit growth, and inclusive financial innovation. It also contributes to methodology by constructing a composite index and employing robust panel estimation with cross-sectional dependence, techniques not used in existing empirical studies.