An Analysis of the Relationship Between Financial Inclusion and Financial Stability in South Africa

Abstract

This paper examined the relationship between financial inclusion and financial stability in South Africa. In so doing, the Engle-Granger approach to Error Correction Model (ECM) was used on quarterly time-series data for the period 2004 to 2020. Two different variables were used to measure financial inclusion, namely commercial bank branches per 100,000 adults (CBB) and number of ATMs per 100 000 adults (ATMs), which was regressed separately against Bank Z-Score (BZS) which was used as a measure of financial stability. The results revealed that higher levels of financial inclusion either, positively or negatively impact financial stability, depending on the type of financial inclusion initiative.