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Effect of Regulatory Framework on Access to Banking: Evidence from Nigeria and South Africa

Effect of Regulatory Framework on Access to Banking: Evidence from Nigeria and South Africa


Abstract: The positive effect of financial market development on economic growth is well documented in literature. Various studies in this regard tilt more towards the role of domestic savings via the commercial banking nexus. In most instances, a well-regulated and efficiently-supervised banking system provides the requisite platform for the unbanked to formally integrate into the financial market. Judging from the critical roles that domestic savings play in economic growth, it is puzzling that developing countries, especially countries in Africa, are not initiating regulatory interventions that are capable of promoting savings through improved banking outreach, in addition to broadening access to financial services. Such interventions include initiation of regulatory framework that enhances access to banking by the unbanked, which account for more than 25 percent in Nigeria and South Africa. Using data generated from 4000 structured questionnaires administered across the two countries with a 92.1 percent response rate, parametric estimations and correlational analyses reveal that high interest rate, high borrowing cost, required documents, and tight regulation associate with lower level of banking outreach while product pricing and supervision weakly correlates with access to financial services. The study recommends policy intervention to lessen the restrictions in the regulatory framework to improve both banking outreach levels as well as access to financial services in the interest of development of the financial market to enhance economic growth.

JEL classification: G2, G20, G21

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