Understanding Financial Inclusion in Africa: A Multidimensional Banking–Insurance Index and its Key Influencing Factors

Abstract

Financial inclusion is widely recognized as a multidimensional concept, hence, it is best measured using a composite index. However, previous studies have often relied on single indicators that fail to capture the multidimensional nature of financial inclusion, or have constructed indices based solely on banking data, overlooking other critical financial services such as insurance. To address this gap, the present study incorporates both banking and insurance sector data in constructing a Financial Inclusion Index (FII) for a purposive sample of 14 African countries over the period 2000–2021, based on data availability. The results indicate that, apart from Sierra Leone, which recorded an average FII of 0.30, the remaining countries exhibited average indices below 0.30. Consequently, Sierra Leone is classified as a medium financial inclusion economy, while the other countries fall within the low financial inclusion category. The study further investigates the long-run and short-run determinants of financial inclusion using panel data and cointegration techniques. The empirical findings reveal that dependency ratio, GNI per capita, education, inflation, money supply, and urbanization exert statistically significant and positive effects on financial inclusion in the long run, whereas domestic credit to the private sector shows no significant long-term impact. In the short run, none of the variables exhibit statistically significant effects, underscoring the structural and persistent nature of financial inclusion challenges in the region. These results highlight the need for sustained, long-term policy interventions focused on promoting economic growth, improving education, and deepening financial systems to enhance financial inclusion across Sub-Saharan Africa.