Financial Inclusion and Bank Performance: Assessing the Mediating Effect of Financial Development in Sub-Saharan Africa

Abstract

This study examines the relationship between financial inclusion, financial development, and bank performance in Sub-Saharan Africa, with a focus on the mediating effect of financial development. Using a panel data from 42 sub- Saharan Africa countries, with a sample of 2100 observations from the World Development Indicators from 1990-2024, the study employs structural equations modelling of Baron and Kenny (1986) mediation analysis approach to investigate the relationship between financial inclusion, financial development, and bank performance. The results indicate that financial inclusion has a significant positive impact on bank performance, accounting for approximately 70.7% of the variation in bank performance. However, the relationship between financial inclusion and bank performance is mediated by financial development, which plays a critical role in enhancing bank performance. The Sobel Test confirms that the mediation effect of financial development is statistically significant. The study's findings have important implications for policymakers and financial institutions seeking to promote financial inclusion and improve bank performance in Sub-Saharan Africa. The results suggest that financial development is a crucial mechanism through which financial inclusion affects bank performance and that policymakers should prioritise initiatives that promote financial development to enhance bank performance.