Drivers of financial innovation in sub-Saharan Africa

Most African financial innovation studies have primarily been country-specific and at the firm level, with little or no focus on cross-country studies. Consequently, knowledge derived from their findings cannot be broadly applied. What drives financial innovations in sub-Saharan Africa (SSA) remains an unanswered research question. Therefore, this study investigates financial innovation drivers in SSA by employing data from 46 countries from 1978 to 2017. Data were obtained from the World Development Indicators, the Globalisation Index, and the Global Financial Development Index and analysed using the System Generalised Method of Moments (SGMM) approach. The results show that competition, technological development, regulation, and tax are significant drivers of financial innovation in SSA. Similar findings have been found for the individual measures of financial innovation: ATMs and Branchless Banking. For robustness checks, the models were specified as panel fixed effects, random effects, and re-estimated. The findings are generally consistent with the SGMM estimations. The policy implication is that countries in SSA must prioritise these identified drivers for financial innovation to thrive in the sub-region. Therefore, governments in SSA should create an enabling environment to facilitate the process of financial innovation.