Financial inclusion and financial stability in West Africa: An egg-and-chicken problem?

Djeneba Dramé, Vincent Fromentin () and Florian Léon ()
Additional contact information
Djeneba Dramé: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique
Vincent Fromentin: CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine
Florian Léon: FERDI - Fondation pour les Etudes et Recherches sur le Développement International, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne

Post-Print from HAL

Abstract: Financial inclusion is widely recognized as a crucial development objective, yet its implications for financial stability remain theoretically ambiguous and empirically unsettled. This paper examines the two-way relationship between financial inclusion and financial stability in Africa. To do so, we use a dataset covering 52 banks in the West African Economic and Monetary Union (WAEMU) over the period 2002–2019. By combining heterogeneous panel causality tests with a panel vector autoregressive (PVAR) framework, we provide a dynamic assessment of the inclusion–stability nexus at the microeconomic level. The findings reveal an asymmetric relationship: financial inclusion increases banks' credit risk exposure — as captured by rising loan loss provisions — while leaving overall solvency broadly unaffected. This risk channel operates primarily through the extensive margin — the number of accounts and ATMs — rather than through aggregate deposit volumes. Heterogeneity analyses further show that the effects are more pronounced for smaller and undercapitalized banks, highlighting the conditional nature of the relationship. Conversely, we find no robust evidence that financial stability significantly drives financial inclusion. Overall, the findings suggest that broadening access to formal banking services through account ownership and payment infrastructure raises provisioning needs without systematically undermining bank solvency, calling for risk-sensitive inclusion policies accompanied by adequate capital buffers.

Keywords: Causality; PVAR; Africa; Bank stability; Financial inclusion (search for similar items in EconPapers)
Date: 2026-10
Note: View the original document on HAL open archive server: https://hal.univ-lorraine.fr/hal-05655276v1
References: Add references at CitEc
Citations:

Published in International Economics, 2026, 187, pp.100710. ⟨10.1016/j.inteco.2026.100710⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05655276

DOI: 10.1016/j.inteco.2026.100710

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().