Foreign Banks in the Arab World and the Role of Financial and Institutional Development in Promoting Financial Inclusion. A Scientific Study at the International Private University of Science and Technology
A researcher from the Faculty of Business Administration and Finance at the International University for Science and Technology conducted a scientific study entitled: “The Entry of Foreign Banks and Financial Inclusion: Insights from the Middle East and North Africa Region” with the aim of studying the impact of these banks on financial inclusion in the region using data from 21 countries during the period 2000-2021.
This study is particularly important given the limited research examining the impact of the direct presence of foreign banks on financial inclusion, especially in terms of access and use.
It also examines the extent to which this relationship is affected by the quality of institutions and the level of financial development in host countries.
Modernization theory: to assume that the entry of foreign banks enhances access to and use of financial services by improving efficiency and banking practices.
New institutional theory: to analyze the moderating effects of institutional quality on these relationships, assuming that weak institutions can limit access by encouraging foreign banks to “cherry-pick” customers.
The study used advanced statistical methodologies, such as:
– Quantity estimation with standard error correction (PCSE).
– Functional generalized least squares (FGLS).
– Generalized method of moments (GMM) to analyze dynamic relationships.
The main variables include the presence of foreign banks, financial inclusion (both in terms of access to and use of financial services), and determinants such as institutional quality, deposit interest rates, credit to the private sector, population growth, and urbanization rates.
*The presence of foreign banks negatively affects access to financial services (such as ATMs and branches), but positively affects financial usage (such as deposit accounts).
*The role of institutional quality: Weak institutional quality exacerbated the negative impact on access to financial services, but reinforced the positive impact on usage.
*Weak financial development: Increased the negative effects on financial inclusion.
The GMM analysis confirms that these effects vary depending on the distribution of financial inclusion, underscoring the importance of country-specific contextual factors.
Study recommendations
– Improve the quality of institutions to ensure equitable distribution of financial services.
– Promote financial development to reduce the negative effects of foreign bank entry.
– Tailor policies to the local context, as outcomes vary depending on financial infrastructure and governance.
Conclusion
This study criticizes the simplistic view of foreign banks as a tool for supporting financial inclusion, emphasizing that their impact is conditional on institutional quality and financial development. It also provides valuable insights for policymakers in the Middle East and North Africa region, contributing to the promotion of sustainable development and effective financial inclusion.
This study is one of the pioneering pieces of research that reconstructs a deeper understanding of the nuances between foreign banks and sustainable development, questioning the overly simplistic view of foreign banks as a useful tool and raising critical issues for future research and policymaking.
The study was published in the International Journal of Islamic and Middle Eastern Finance and Management, which is indexed in the Scopus and Web of Science databases in the first quartile (Q1) with a CiteScore impact factor of 5.9.