Rewiring finance for inclusion: Digital and traditional mechanisms in African banking

We investigate how traditional and digital financial inclusion affect the financial stability of African banks, with a particular focus on the moderating role of the gender gap. Grounded on the Financial Intermediation Theory, the Technology Acceptance Model, and Gender Role Theory, we constructed unique measures for digital and traditional financial inclusion to explore how this influence bank stability. Across 37 African countries from 2011 to 2021, our results show that both traditional and digital finance significantly enhance bank stability, with stronger effects observed for women than men. A narrowing gender gap in traditional financial services usage improves stability, whereas a wider gender gap in digital financial services usage weakens it. We also show that these effects operate through three core transmission mechanisms: improved asset quality through lower credit risk, stronger liquidity positions driven by expanded retail deposits, and more stable funding bases that reduce reliance on short-term financing. We further find that small banks benefit most from digital financial inclusion and reduced gender gaps, while large banks are less affected. We mitigate endogeneity bias, and our findings are consistent and robust. This study underlines the importance of promoting gender-inclusive financial policies and advancing digital infrastructure, in line with several UN SDGs, to achieve a stable and resilient banking sector in an emerging context like Africa.