FDIs critical to driving financial inclusion agenda – Prof Abor

The Professor of Finance at the University of Ghana Business School (UGBS), Legon, Prof Joshua Yindenaba Abor, has urged African governments to reinforce efforts at attracting private capital as part of strategies to drive financial inclusion to desired levels.

“Appropriate measures are needed to attract more private capital flows, while being mindful of specific characteristics in the domestic economy,” Prof Abor stated.

According to Prof Abor, developing countries with underdeveloped financial markets and weak institutions needed more private capital flows in order to drive inclusive financial development.

Financial services could be extended to sectors or areas that were hitherto financially excluded, adding that “we expect intuitively that private capital flows, be it FDIs, portfolio flows or debt can stimulate the supply of funds to these economic agents.”

Prof Abor was delivering a virtual lecture on the topic ‘Private Capital Flows and Inclusive Finance: The Moderating Roles of Domestic Financial Markets and Institutions,’ at the Centre for Global Finance, School of Finance and Management, SOAS University of London.

The motivation for the paper was to look at how domestic financial markets and institutions affect the relationship between private capital flows and inclusive finance. `

The paper investigated how financial globalization, particularly, private capital flows could complement the efforts of global policymakers in reducing financial exclusion around the world.

“We examined how private capital flows drive inclusive finance by gauging the roles played by domestic financial markets and institutions across the globe,” the former Dean of the UGBS stated.

Policy interventions should be directed at attracting more private capital flows (especially FDI) in markets with less developed financial markets and weak institutions.

Countries with poor institutional quality need private capital flows, especially FDI, the most to make progress in financial inclusion.

Prof Abor noted that countries with well-developed financial markets and strong institutions should focus on further developing their financial markets and institutions, while countries whose markets are poorly developed need more private capital flows, if their citizens will be financially included.

According to Prof Abor, though global financial inclusion improved by about 18 per cent between 2011 and 2017, many people, especially the poor remained financially excluded.

Prof. Joshua Yindenaba Abor is a financial economist, qualified accountant and Professor of Finance at the UGBS. He is a former Dean of UGBS, a Fellow at the Ghana Academy of Arts and Sciences, and an External Fellow at the Centre for Global Finance, SOAS University of London. He is also a researcher with the African Economic Research Consortium and a member of the Bank of Ghana Monetary Policy Committee.