Vol.:(0123456789) Global Social Welfare https://doi.org/10.1007/s40609-023-00325-3 Mobile Money and Financial Inclusion: The Role of Institutional Quality Isaac Bawuah 1 Accepted: 30 November 2023 © The Author(s), under exclusive licence to Springer Nature Switzerland AG 2024 Abstract This paper investigates the role of institutional quality in the relationship between mobile money and financial inclusion in Ghana from 2014 to 2021. It uses annual data from the World Development Indicators database on a bundle of four financial inclusion variables (ATMs per 100,000 adults; the number of bank branches per 100,000 adults; deposit accounts with com- mercial banks per 1,000 adults ; and account ownership at a financial institution or with a mobile money service provider), six institutional quality indicators (i.e., rule of law, governance effectiveness, control of corruption, voice and accountability, regulatory quality, and political stability), and total volume of mobile money transactions in a year. The baseline regression was employed. The empirical results reveal that institutional quality and mobile money have a direct positive and significant effect on financial inclusion. Also, institutional quality plays a positive and significant moderating role in the relationship between mobile money and financial inclusion. Furthermore, mobile phone subscription, financial development, inflation, and GDPGR influence financial inclusion. Keywords Mobile money · Financial inclusion · Institutional quality Introduction Financial inclusion of the poor, through mobile innovation services, remains an important global agenda (Lashitew et al., 2019; Banna et al., 2022) and continues to receive public pol- icy, research, and stakeholders’ attention in regions with lim- ited financial access, particularly countries in Africa. Develop- ing countries see financial inclusion as an important growth channel (Noha & Ayah, 2021; Khera et al., 2022; Fabregas & Yokossi, 2022). From this perspective, financial inclusion is perceived as an important transformative agenda in African countries. There is a general recognition that access to essen- tial, convenient, and affordable financial products and services has a strong potential to alleviate extreme poverty, promote individual and household prosperity, and enhance sustainable economic growth (Omar & Inaba, 2020; Lee et al., 2023; Hus- sain et al., 2023; Chowdhury & Chowdhury, 2023; Adedokun & Ağa, 2023; Dwumfour, 2020). A notable measure of finan- cial inclusion, adopted in this study is the number of people with official bank accounts, ATMs per 100,000 adults, depos- its with financial institutions and a number of bank branches (Abiona & Koppensteiner, 2022; Fayissa & Nsia, 2013; GSMA, 2015, 2018; Aboagye & Anong, 2020; Zins & Weill, 2016; Kim, 2022). While developed countries have about 80% of their population with a formal bank account (Avom et al., 2023) Africa remains significantly excluded with only 50% formal account holders, and Ghana struggling with 40% (Pay- ment System Reports, 2021). Expanding financial innovation services such as mobile money in Africa including Ghana, is considered an ideal solu- tion to achieving inclusive finance. Mobile money holds the potential to mitigate income inequality and poverty, promote investment and capital distribution, enhance payment systems, improve banking sector performance, foster economic growth, increase financial security by abolishing the transport of large sums of money, increase transparency through quick digital financial statements, which reduces corruption and increase financial access to millions of unbanked populations across the world, particularly in Africa (e.g., Koomson et al., 2021; Grzybowski et al., 2023; Lashitew et al., 2019; Senyo et al., 2022; Sakyi‐Nyarko et al., 2022; Islam et al., 2022). Previously, the policy direction toward financial inclu- sion in many African countries including Ghana was the expansion of microfinance institutions (MFIs) (Avom et al., * Isaac Bawuah isaacbawuahprof@gmail.com 1 Department of Accounting and Finance, School of Business, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana