The moderation effect of institutional quality on the nexus between migrant remittance and financial inclusion in West Africa

BACKGROUND: Migrants' remittances are critical in financing the economies of Africa and the West African region, in addition to FDI and ODA. It is also a significant driver of financial inclusion. OBJECTIVE: This paper assessed the moderating role of institutional quality on migrants' remittances and financial inclusion in West Africa during 2004–2023. METHODS: Secondary data was used for this study, sourced from the World Bank’s World Development Indicators (WDI), the World Governance Indicator (WGI), and the IMF’s Financial Access Survey (FAS), 2023. This study employed the Panel Fixed Effects (PFE) estimation technique, which accounts for Driscoll and Kraay's (1998) standard error. To ensure the robustness of the findings, the analysis was augmented with the utilisation of feasible generalised least squares (FGLS). RESULTS: There was an overall positive impact of institutional quality on financial inclusion (FI), at a significant rate of 120.8%, accounting for deposit-taking microfinance institutions, thereby highlighting that institutions play a crucial part in improving financial inclusion in West Africa. Also, the moderating effect of institutional quality had a more positive impact on microfinance institutions than commercial banks, at a significant rate of 16.2%. CONCLUSION: In summary, attention should be given to establishing more microfinance institutions as they serve as a better remittance distribution channel when compared to commercial banks, emphasising enhancing quality in financial services delivery. This also encourages more people to be financially included, thereby making better economic use of the remittance received in West Africa.