Does Green Finance Lead to Inclusive Growth in Africa? Rethinking the Role of Financial Inclusion

The study assesses the role that financial inclusion plays in the relationship between green finance and inclusive growth. Drawing on institutional and financial intermediation theories, the study investigates panel data from 35 African countries over the period 2000–2023 employing a fixed effect and two-step System Generalised Method of Moments estimator. Green finance was measured using renewable energy investment flows reported by IRENA, expressed in US dollars, as a proxy for the financial resources mobilised toward environmentally sustainable projects. Financial availability, financial accessibility and financial usage are the three indicators used to measure financial inclusion. Inclusive growth was measured using a multidimensional composite index capturing economic performance, equity, and social development dimensions. The results reveal that green finance increases financial inclusion. Green finance and inclusive growth are inversely related. There is no significant evidence to prove that financial inclusion moderates the relationship between green finance and inclusive growth. The contribution from the study shows that green finance promotes financial inclusion but does not automatically guarantee inclusive growth. The study departs from the predominantly linear treatment of green finance in the African literature by showing that financial deepening and inclusive development are not necessarily complementary outcomes of green investment. It is, therefore, imperative for policymakers to deliberately design green finance with redistribution and institutional safeguards in mind to ensure that inclusion leads to broad-based development.