Bank competition or concentration: Which is more important for access to finance in Africa?

Abstract

Utilising data covering the period 2001-2016 from 45 African countries, this study investigated the impact of bank competition/or concentration on access to finance. The two-step system, Generalised Methods of Moment (GMM) analysis, found that low competition, as proxied by the Lerner Index or Boone Indicator, diminishes firms’ access to finance. Besides, relying on a fixed-effect Panel threshold model, the study revealed a concave relationship between firms’ access to finance and competition in Africa. This finding implies the existence of a threshold after which competition becomes detrimental to firms’ access finance. Notwithstanding, to support development, the study recommends that authorities consider policies to de-concentrate the banking sector, thus promoting access to finance in Africa.