The impact of monetary policy on bank lending rate in South Africa

The pass-through of the policy rates to bank lending rate is an important subject matter because it measures the effectiveness of monetary policy to control inflation or stabilize the economy. This study investigates the long-run interest rate pass-through of the money market rate to the bank lending rate and asymmetric adjustment of the bank lending rate. The study applies the momentum threshold autoregressive and asymmetric error correction models. The asymmetric error correction results reveal that bank lending rate adjusts to a decrease in the money market rate in South Africa. The findings suggest that the South African commercial banks adjust their lending rate downward but the lending rate appears rigid upward, which supports the customer reaction hypothesis

An Investigation into the Level of Financial Inclusion in Sub-Saharan Africa

Financial inclusion is crucial for redistribution of economic resources between the deficit and surplus units in an economy. Despite the importance of financial inclusion, especially for economic growth of developing regions such as Sub-Saharan Africa, the prevailing level financial inclusion remain an open question. Against this background, this study investigates the level of financial inclusion in Sub-Saharan Africa between 2005 and 2015. This study employs secondary data obtained from the International Monetary Fund (IMF). The data obtained was subjected to Principal Component Analysis to determine the level of financial inclusion in Sub-Saharan Africa. The findings show that Sub-Saharan Africa has a medium level of financial inclusion during the observed period with Index of Financial Inclusion (IFI) value of 0.095023. The study concludes that Sub-Saharan Africa has high propensity to achieve a high level of financial inclusion in the region if more outlets of financial institutions are established.JEL Codes - G1; G

Fintech, human development and energy poverty in sub-Saharan Africa

Studies have highlighted the important role of financial technology (fintech) in enhancing socio-economic conditions of nations. However, despite the efforts of governments to improve the latter, the rating of African countries still remains manifestly inadequate. Given that access to electricity is imperative for fintech, and fundamental to improving socioeconomic conditions, we provide novel evidence by investigating the degree to which the prevailing energy poverty in Africa mediates the relationship between the duo. Our baseline results confirm that fintech has a significant positive impact on socioeconomic conditions, proxied by human development, and the impact becomes increasingly significant in the face of constant energy supply. However, when we split our sample based on regions and income classification proposed by the World Bank, our results show that the impact of fintech on human development, in the absence of access to electricity, is notably limited to some African regions. Considering the current state of human development in Africa, our study advocates for more investment in energy infrastructure for the rapid realization of the gains of fintech

Banks’ Price Behaviour and its Determinants in Nigeria

Bank-based financial systems, through the financial intermediation function, enhance economic growth. However, in the performance of this function, banks are faced with issues such as information asymmetry and inefficient institutional qualities that may lead to increased operational costs which reflects as social costs of financial intermediation and are passed on to economic units. Consequently, banks may be confronted with the problem of determining the right price for its products and services. On this premise, this study examines the pricing behaviour of Nigerian commercial banks and its determinants. The random effects regression estimation technique is used on annual panel data of 15 publicly listed Nigerian commercial banks for the period 2005 – 2017. Results from the investigation show that bank-specific factors such as bank size (0.871, p<0.05) liquidity (0.256, p<0.01), credit quality (0.095, p<0.1), and inflation (0.436, p<0.05) as a macroeconomic variable, have positive and significant effects on bank price behaviour. These findings suggest that the variables are associated with higher social costs of financial intermediation in commercial banks in Nigeria. It is recommended that in order to lower borrowing costs, banks should endeavour to reduce the level of these bank-specific factors which would lead to reduction in costs associated with information asymmetry and inefficiency. In terms of inflation, banks are recommended to factor in inflation related costs into their pricing process while monetary policy regulators should put in place, policies that target reduction in inflation rate

Reflections on COP27: How do technological innovations and economic freedom affect environmental quality in Africa?

Studies in literature argue that technological innovation is a crucial component that could provide an enduring solution to the effects of climate change. However, we argue in this study that technology-driven climate solutions may not be sustainable in the absence of robust economic freedom, particularly in Africa where there are manifestly weak governance indices. Hence, we investigate the interaction effects of technological innovation and economic freedom on environmental quality in Africa. By doing this, we deviate from prior studies that have considered only non-interactive regressions and offer a net effect approach which allows us to simultaneously introduce economic freedom as a modulating policy variable. We utilize panel data from the Fraser Institute and the World Bank Database for the period 2000 to 2018 for 31 African nations. Using an array of econometric techniques, our initial findings disclose a significant unconditional negative impact of technological innovation and economic freedom on the proxies of environmental quality. When both variables are interacted, the net effect suggests further negative impact. We account for potential endogeneity, and our results, yet remain consistent. We then evaluate the effect across regions and income classes. Our findings suggest that technological innovation improves environmental quality in low-middle and upper-middle income African nations, whereas the opposite is observed in low-income and Western nations. Our findings offer comprehensive and policy-relevant information to African stakeholders and international organizations, on the suitable strategies to managing environmental degradation

Mobile money innovation and global value chain participation: Evidence from developing countries

This study provides empirical insights on the effect of mobile money innovation on global value chain participation. Applying quantile estimation technique on the data of 90 developing economies between 2011 and 2018, we document that mobile money innovation has significant positive effect on participation in global value chains. Furthermore, our results reveal that economic and governance factors such as financial development, human capital development, tariff and distance are crucial variables that influence participation in global value chain. We recommend that friendly trade policies and investment in socioeconomic infrastructures and human capital development would help in facilitating the wide-spread adoption of mobile money innovations and enhance GVC participation

Comparative Analysis of Technical Efficiency of Islamic Banks in Selected Low-Income Countries of Africa and Asia

Islamic banks in Africa and Asia have been characterised by some technical inefficiencies. The sources (managerial issues or scale of operation) of these inefficiencies still remain a problem of empirical investigation since mixed reports have been given in that regard. This study therefore investigated the sources of inefficiencies by decomposing technical efficiencies of the banks and comparing the components of Islamic banks in the low-income countries of Africa and Asia. Data were collected from annual reports of the selected banks and analysed using both descriptive and inferential statistical tools. Data Envelopment Analysis (DEA) was conducted to estimate the pure technical and scale efficiencies of the banks. The study found that the inefficiency attributable to all the selected banks were due to pure technical efficiency (0.876), which was lower than the mean value of scale efficiency (0.917). That is, the inefficiencies were caused largely by managerial problems rather than operating scale. It was also found that Islamic banks in Asia were more technically efficient than those from Africa in terms of pure technical (0.920>0.827) and scale efficiencies (0.934>0.902). The study concludes that managerial issues such as insufficient competent staff, poor monitoring and so on were the causes of low efficiency attributed to Islamic Banks in Africa. It was thus recommended that Islamic banks in Africa should employ staff members who are competent with requisite knowledge of Islamic finance to improve the pure technical and overall efficiency of the banks

Financial market development, global financial crisis and economic growth : evidence from developing nations

Emerging and frontier markets in Africa have witnessed various economic and financial reforms aimed at integrating the domestic markets into the global financial market to attract investment. Whether these reforms promote high economic growth remains inconclusive. The paper applies the pooled mean group estimation technique to empirically re-investigate the link between financial market development, global financial crisis, and economic growth in selected African economies. The results strongly support our hypotheses that stock market and banking sector development promotes economic growth in the selected countries. Moreover, financial crisis reduce the positive effects of both the stock market and banking sector developments on economic growth. The study suggests that both the banking sector and stock market are important to deliver the long-run economic growth that the African region desired. Moreover, effort should be made to enact policy measures that would ensure development of the stock market which has received inadequate attention.info:eu-repo/semantics/publishedVersio

The effect of financial market development on capital and debt maturity structure of firms in selected African countries / Oyebola Fatima Etudaiye-Muhtar

Spurred by the finance-growth literature establishing that development of the financial system promotes growth in the economy, some African countries introduced financial sector development policies to accelerate economic growth. Introducing these policies (examples include removal of sectoral allocation of credit, interest rate deregulation, privatisation of state-owned banks, relaxation of foreign participation in investment activities in the domestic stock exchange, cross-listing of shares across different stock exchanges etc.), besides enhancing economic growth also facilitates firms’ access to financial markets for external capital. This is particularly important for firms in Africa because access to external finance is one of the obstacles facing firms in the region. A comparison of financial market development indicators between countries in Africa and other developing regions by earlier studies showed that African financial markets lag behind in some indicators, which may be attributed to some of the issues that besiege financial markets in Africa. These issues include difficulty in accessing external funds by firms, information asymmetry, high transaction costs, and illiquidity of the market. With the introduction of market development measures meant to enhance firms’ access to finance, earlier studies on capital and debt maturity structure decisions of firms in African countries largely overlooked the effect of the development measures on these two key financial decisions. Thus, supply-side factors affecting firms’ re-balancing of capital and debt maturity structure are yet to be researched. Given this scenario, this thesis investigates the effect of financial market development on corporate capital and debt maturity structure within a framework that allows for the determination of adjustment costs and speed of adjustment. The annual financial and accounting data of publicly-listed non-financial firms and country level data in nine African countries over the period 2003-2012 are compiled and analysed. These countries are classified either as emerging or frontier markets. The countries in the study are Botswana, Egypt, Ghana, Kenya, iv Mauritius, Morocco, Nigeria, South Africa and Tunisia. The two-step system generalized methods of moments technique is used in analysing the data. Results of the analysis indicate that the financial intermediation theory of an increase in debt financing following banking sector development is not supported for the banking sector. However, a decline in debt finance supports the hypothesis that development in the stock market leads to a substitution effect with equity being substituted for debt. Furthermore, firm-level data (used as control variables) supports dynamic trade-off theory of capital structure, contracting and signalling theory of debt maturity structure for firms in the study. This reflects the dynamism in capital and debt maturity decisions and indicates that transaction costs due to market imperfections may hinder firms from reaching optimal capital structure. In summary, the results suggest that while stock market development to an extent has been successful in promoting the use of equity, financial system policy makers need to put more effort into developing the banking sector to improve debt usage. This may be achieved by introducing and implementing banking sector development measures that lowers the cost of debt finance making it readily accessible