The Impact of Disaggregated Financial Innovation and Energy Poverty on Microfinance Development in Africa

Abstract

This study explores the impact of financial innovation and energy poverty on the development of microfinance in 49 African nations, using yearly data from 2000 to 2022. The study deploys the panel system Generalised Method of Moments (GMM) to investigate the relationships between the phenomena, with robustness checks performed using the Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) models. The GMM investigation revealed that financial innovation has a positive impact on microfinance development in Africa, but energy poverty has a significant negative impact. The FMOLS results confirm the positive benefits of financial innovation and the negative implications of energy poverty. In contrast, the DOLS findings show that financial innovation may have a significant negative impact on microfinance development, although the long-term implications of energy poverty are equivocal. The study emphasises the need of using contemporary financial technologies including ATMs, point-of-sale systems, mobile banking, and mobile money to improve microfinance in Africa. Additionally, it emphasises the importance of addressing energy poverty, since reliable energy is crucial to the sustainability of small businesses and industries. As a result, the research suggests authorities should draw attention to increasing energy production while ensuring equal and cheap distribution.

Keywords: Financial Innovation, Energy Poverty, Microfinance Development
Jel Classification: N2, G53, F63, P28