Financial inclusion and banking sector competition in South Africa

Using survey data from the World Banks Global Findex Database and a pseudo panel we investigate two pertinent issues pertaining to financial inclusion in South Africa. First, we consider the factors driving the likelihood of accessing financial services in South Africa. Second, we investigate the impact of banking sector competition on financial inclusion in South Africa essentially testing the information and market power hypotheses. Household head characteristics such as age, education and income are found to positively influence the likelihood of being financially included. Considering the relationship between financial inclusion and banking sector competition, evidence supports the information hypothesis rather than the market power hypothesis. That is, lower bank competition facilitates the formation of longer-lasting relationships between banks and their clients, which incentivises banks to invest in information generation and monitoring in previously unserved markets, thereby expanding financial inclusion.