Financial Regulation, Financial Inclusion and Competitiveness in the Banking Sector in SADC and SAARC Countries: The Moderating Role of Financial Stability

João Jungo, Mara Madaleno and Anabela Botelho
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João Jungo: Department of Economics, Management, Industrial Engineering and Tourism (DEGEIT), Research Unit on Governance, Competitiveness and Public Policies (GOVCOPP), Campus Universitário de Santiago, University of Aveiro, 3810-193 Aveiro, Portugal
Mara Madaleno: Department of Economics, Management, Industrial Engineering and Tourism (DEGEIT), Research Unit on Governance, Competitiveness and Public Policies (GOVCOPP), Campus Universitário de Santiago, University of Aveiro, 3810-193 Aveiro, Portugal
Anabela Botelho: Department of Economics, Management, Industrial Engineering and Tourism (DEGEIT), Research Unit on Governance, Competitiveness and Public Policies (GOVCOPP), Campus Universitário de Santiago, University of Aveiro, 3810-193 Aveiro, Portugal

IJFS, 2022, vol. 10, issue 1, 1-24

Abstract: Financial inclusion is a widely used measure to improve the living standards of households and foster inclusive economic growth. Thus, financial inclusion is one of the main policy objectives in developing countries. Besides, financial regulation (capital adequacy requirement) is a policy measure used to ensure financial stability. The objective of this study is to examine the effect of financial regulation on competitiveness and financial inclusion in 15 countries in the SADC (Southern Africa Development Community) region and 8 countries in the SAARC (South Asian Association for Regional Cooperation) region over the period 2005–2018. The result of Feasible Generalized Least Squares (FGLS) estimation suggests that financial regulation reduces competitiveness and hampers financial inclusion in the banking sector in the two regions. Furthermore, we find that financial stability moderates the negative effect of financial regulation on competitiveness and financial inclusion, meaning that financially stable banks remain competitive and normally offer financial products and services even if strong capital adequacy requirements are implemented. Additionally, we find that competitiveness increases financial inclusion in countries in the SADC region. The policy implication of this study focuses on regulatory flexibility to preserve the need for greater financial inclusion in the two regions. As for the practical implication, the study calls for strategic measures to preserve stability such as complementing financial inclusion with financial literacy, fostering corporate governance.

Keywords: financial regulation; financial inclusion; competitiveness; financial stability; feasible generalized least squares model (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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