Bank Competition and Financial Inclusion: Evidence from Ghana

This paper investigates how banking sector competition, measured from the consumer’s perspective as well as from financial intermediary pricing behaviour, affects financial inclusion in a developing country like Ghana. Financial inclusion in Ghana has remained low, leading us to examine if competition within banks (who happen to be the largest financial institutions) promotes financial inclusion. This paper measures competition using two indicators: the consumer-level measure of competition relating to the proliferation of bank branches, and a measure for banking sector competition using the funding-adjusted Lerner index at the financial intermediary level. Using data from the 2013 Ghana Living Standards Survey, districtlevel data on bank branches and bank-level financials from 23 banks spanning the period 2008–2015, we found in almost all cases that competition, whether measured by bank branch proliferation or at the financial intermediary level, improves financial inclusion. These findings suggest that policies aimed at improving competition in the banking sector can yield larger societal benefits by increasing the proportion of the population included in the financial sector. We recommend that the Bank of Ghana, in consultation with the Ghana Association of Bankers, should draft a competition policy for banks in Ghana. Key areas to examine include the trend towards “open banking”, and the integration of mobile money and technology into the financial sector.