Information for banking efficiency in Africa: Evidence from income levels and legal origins

Asongu, Simplice; Odhiambo, Nicholas M. Article Information for banking efficiency in Africa: Evidence from income levels and legal origins The European Journal of Comparative Economics (EJCE) Provided in Cooperation with: University Carlo Cattaneo (LIUC), Castellanza Suggested Citation: Asongu, Simplice; Odhiambo, Nicholas M. (2022) : Information for banking efficiency in Africa: Evidence from income levels and legal origins, The European Journal of Comparative Economics (EJCE), ISSN 1824-2979, University Carlo Cattaneo (LIUC), Castellanza, Vol. 19, Iss. 2, pp. 251-274, https://doi.org/10.25428/1824-2979/014 This Version is available at: https://hdl.handle.net/10419/320183 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nd/4.0/ The European Journal of Comparative Economics Vol. 19, no. 2, pp. 251-274 ISSN 1824-2979 http://dx.doi.org/10.25428/1824-2979/014 First published online: 16/12/2022 Information for banking efficiency in Africa: evidence from income levels and legal origins Simplice A. Asongu*, Nicholas M. Odhiambo** *** Abstract The study assesses how information sharing through mobile phones affects banking system efficiency in Africa with particular emphasis on income levels (middle-income versus low-income countries) and legal origins (English Common law versus French Civil law countries). The focus is on 53 African countries with data for the period 1996-2019, and the empirical evidence is based on Quantile regressions which enable the study to assess the nexus throughout the conditional distribution of banking system efficiency. The following findings are established: (i) mobile phone penetration promotes banking system efficiency in the 25th quantile and the median of banking system efficiency in low-income countries, while for middle-income countries, it is significant exclusively in the bottom quantile (i.e., 10th quantile). (ii) Except for the highest (i.e., 90th) quantile in which the effect of the mobile phone is not significant in English Common law countries, the impact is significant throughout the conditional distribution of banking system efficiency in Common law countries. (iii) As for French Civil law countries, the nexus is only significant in the median and highest (i.e., 90th) quantile of the conditional distribution of banking system efficiency. Policy implications are discussed. JEL classification: G20, G29, L96, O40, O55 Keywords: Allocation efficiency, Information asymmetry, Mobile phones 1. Introduction There are three main motivations for a study on the relevance of mobile phone penetration in mitigating the asymmetry of information for financial allocation efficiency in the African continent 1 . They are: (i) the scope for information and communication technology development; (ii) a strategic need for internal sources of investment to complement external capital flows and (iii) sparse financial allocation efficiency due to asymmetry of information 2 between lenders and borrowers in the banking sector on the * (Corresponding author) Department of Economics, University of South Africa. P. O. Box 392, UNISA 0003, Pretoria, South Africa. E-mails: [email protected] / as[email protected] ** Department of Economics, University of South Africa. P. O. Box 392, UNISA 0003, Pretoria, South Africa.Emails: [email protected] , [email protected] *** Acknowledgement : The authors are indebted to the editor and referees for constructive comments. Conflict of interest: The author declares no conflicts of interest. 1 Financial access and banking system efficiency are used interchangeably throughout the study, not least because banking system efficiency is the transformation of mobilized deposits into credit which is a synonym of financial access. 2 Unless stated otherwise, ‘information asymmetry’ refers to information asymmetry between lenders and borrowers. For the purpose of simplicity, we may simply use ‘information asymmetry’ without further reference to corresponding parties, i.e., lenders and borrowers. EJCE, vol. 19, no. 9 (2022) Available online at https://ejce.liuc.it 252 one hand and on the other, substantially documented concerns about excess liquidity in African financial institutions. The motivations are engaged here in chronological order. First, on the scope for mobile phone penetration on the African continent, Murphy and Carmody (2015) and Asongu (2017) have recently shown that compared with markets in developed and Asian countries; there is much room left in the African market for the development of mobile phones. According to the narrative, whereas high-end markets are reaching saturation, low-end markets in Africa are offering comparatively substantial investment opportunities. Second, the literature on African business is consistent with the imperative to improve domestic financial development (Tchamyou, 2019; Taiwo, 2021), especially after failed attempts by privatisation policies to attract foreign capital (Fasakin, 2021). The need for domestic sources of investment aligns with the post-2015 inclusive and sustainable development agenda in the sense that external sources of finance like loans (Asongu et al., 2015) and foreign direct investment (Asongu and Tchamyou, 2015) are associated with exclusive human development and inequality respectively, in Africa. Third, there is a recent stream of African finance literature documenting that financial allocation inefficiency in the continent is substantially traceable to information asymmetry between lenders and borrowers (see Triki and Gajigo, 2014; Lussuamo and Serrasqueiro, 2020). Furthermore, the introduction of information sharing mechanism (ISM) has built on the idea that financial allocation inefficiency in the continent can be explained by information asymmetry, notably in terms of concerns about: affordability, physical access and bank lending eligibility (Moyo and Sibindi, 2022; Machokoto, 2021). Hence, in addition to mediating between borrowers and lenders, ISM also enhances market competition, reduces constraints in credit availability and boosts efficiency in the allocation of capital (Jappelli and Pagano, 2002). Unfortunately, despite the theoretical advantages of ISM, African financial institutions are still being confronted with stark concerns of surplus liquidity (Saxegaard, 2006; Fouda, 2009; Asongu, 2014a, p.70) and ISM unfavourable affecting financial development (Asongu et al., 2016). The unexpected negative impact substantiates the narrative that the effect of ISM on lending is difficult to establish: “On the whole, all three models agree on the prediction that information sharing (in one form or another) reduces default rates, whereas the prediction concerning its e ff ect on lending is less clearcut” (Jappelli and Pagano, 2002, p. 2020). Asongu, Odhiambo, Information for banking efficiency in Africa: evidence from income levels and legal origins Available online at https://ejce.liuc.it 253 In response to the evidence of allocation inefficiency, the literature has failed to emphasise the importance of financial sector efficiency from the perspective of the fundamental goal of financial intermediation, which is to transform deposits or liquid liabilities into credit for economic operators (Kablan, 2010; Kiyato, 2009; Al-Obaidan, 2008; Ataullah et al., 2004). In accordance with Asongu and Tchamyou (2014), the main financial efficiency measurements in African literature have focused on Data Envelopment Analysis (DEA) for technical efficiency (Kablan, 2009); cost efficiency (Chen, 2009; Mensah et al., 2012) and profit efficiency (Hauner and Peiris, 2005). Noticeably, in the light of the objectives for the current study, the literature on the nexus between financial development and information asymmetry leaves space for improvement in four main dimensions; namely, the imperative to: (i) focus on regions where concerns about financial access are comparatively more severe; (ii) investigate the impact on financial access by appreciating financial development in the light of the fundamental role of banks in transforming deposits into credit; (iii) examine the underlying complementarity throughout the conditional distributions of financial allocation efficiency and (v) put emphasis on fundamental features such as income levels and legal origins in order to improve space for policy implications. The highlighted gaps are substantiated in the discourse which follows. First, this study concentrates on Africa because, despite the publicized issues of excess liquidity in the continent’s banking sector, minimal literature on information sharing has been devoted to addressing this issue. To our knowledge, the continent has not received the scholarly attention it deserves regarding the underlying anxiety. This substantially contrasts with the evidence that it is a continent where financial access concerns are most severe (Asongu et al., 2016). We substantiate this by articulating the neglect of allocation efficiency and limited focus on Africa in the information sharing (hereafter IS) literature. Second, ‘financial development’- and IS-specific studies have failed to recognise financial efficiency from the perspective of banks’ ability to transform mobilised liquidities into credit for economic operators. Both African-specific and general IS literature have not conceived financial development within the framework of allocation efficiency. Whereas the IS literature has already been discussed in the preceding paragraph, two mainstream indicators have been used in the African financial EJCE, vol. 19, no. 9 (2022) Available online at https://ejce.liuc.it 254 development literature, notably, the: (i) employment of DEA to examine the efficiency of decision-making units 3 and (ii) assessment of cost and profit-linked efficiencies 4 as well as economic efficiency in terms of scale and technical efficiencies 5 . Contrary to the mainstream literature, we use an indicator of financial development efficiency that is in accordance with the policy syndrome of surplus liquidity. The motivation for employing this indicator is that information sharing within the banking sector is necessary to improve banking allocation efficiency. Therefore, the financial measurement employed is the ratio of bank credit to bank deposits because ISM reduces informational rents and boosts competition in the banking sector which result in allocation efficiency and higher levels of financial lending (Pagano and Jappelli, 1993, p. 2019). Third, on the imperative of accounting for existing levels of financial development, the study argues that blanket financial allocation efficiency policies may not be effective unless they are contingent on initial levels of financial development and tailored differently across countries with low and high initial levels of financial access. The intuition for this estimation approach is that certain levels of financial development may be required to achieve positive allocation efficiency externalities from ISM. Hence, all the conditional distributions are considered with particular emphasis on countries with low, medium and high levels of financial access. The employment of quantile regressions is distinct from recent studies which have been based on mean values of the dependent variables, namely: Triki and Gajigo (2014) and Tchamyou and Asongu (2017a) who have respectively employed the Generalised Method of Moments (GMM) and Probit models. 3 The DEA has been employed by Ataullah et al. (2004) and Kablan (2009) respectively in Pakistan and Africa to assess the scale and technical efficiencies. 4 This is in accordance with a strand of African literature on financial efficiency (Kiyato, 2009; Kablan, 2010). Four main financial efficiency measurements have been used in the literature (see Demirgüç- Kunt and Beck, 2009): “They include: the ratio of bank deposits (which measures the extent to which savings can fund private credit), the net interest margin (which is the accounting value of a bank’s net interest revenues as a share of its total assets), overhead cost (or the accounting value of the bank’s overhead cost as a share of its total assets) and, cost/income ratio (which assesses overhead costs relative to revenues)” (Asongu, 2013a, p.665). Whereas the last three are concerned with the profitability concept of efficiency, the conception adopted by this study is the first. 5 The interested reader may refer to Al-Obaidan (2008), who has recently employed a composite measurement of banking system efficiency in investigating the nexus between technical efficiency and globalization. Asongu, Odhiambo, Information for banking efficiency in Africa: evidence from income levels and legal origins Available online at https://ejce.liuc.it 255 Fourth, the inclusion of legal origins and income levels enables the study to provide more room for policy implications between the nexus between information sharing by means of mobile phones. Moreover, banking allocation efficiency can also be contingent on the wealth of nations as well as their legal traditions from colonial legacies. Such fundamentals have been documented in the comparative development literature to elicit cross-country differences in economic development (Beck et al., 2003; La Porta et al., 2008; Mlachila et al., 2017). The comparative importance of income levels and legal origins is put in more perspective in what follows. In terms of income levels, relative to low-income countries, countries with higher income are more linked with institutions that provide more access to how people can realise the maximum of their potential, especially in terms of, inter alia, financial access and equitable distribution of the fruits of economic prosperity (Asongu and Nting, 2021). According to the extant studies, higher income levels avail more market opportunities which include opportunities for financial access (Blanco and Ram, 2019) which are connected to a higher degree by which banks transform mobilized deposits into credit opportunities for households and economic operators. With respect to legal origins, the comparative relevance of French civil law versus English common law is consistent with the extant authoritative literature on comparative economic development (La Porta et al., 1998, 1999), which has been confirmed within the remit of Africa (Asongu, 2012a, 2012b; Agbor, 2015). In the light of the attendant literature, compared to English common law countries, French civil law countries are less effective in terms of openness and adjusting to challenges in the economic environment, such as the ability to leverage information technologies for better financial access opportunities, not least, because compared to English common law countries in Africa, most French civil law countries have monetary systems that are not completely independent on the one hand and on the other, have preferred financial stability and monetary dependence to monetary experience. By putting emphasis on financial stability, instead of allocating credit to economic operators, economic operators in French civil law countries are, on average, less associated with opportunities for credit access (Fouda, 2009; Asongu, 2016). The rest of the study is structured as follows. Theoretical underpinnings are provided in Section 2, while the data and methodology are discussed in Section 3. EJCE, vol. 19, no. 9 (2022) Available online at https://ejce.liuc.it 256 Section 4 presents the empirical results, while Section 5 concludes with policy implications and future research directions. 2. Theoretical framework We discuss the theoretical underpinnings motivating the study in two main strands, namely: (i) the link between financial allocation efficiency and information sharing and (ii) the intuition for the relevance of mobile phones in the sharing of information for financial allocation efficiency. On the first relationship, according to Claus and Grimes (2003), there are two main views in the literature on the theoretical nexus between the sharing of information and financial development. While the second is concerned with mechanisms by which liquidity is provided to banks, the first focuses on the transformation of assets’ risk features by banks. However, both strands are consistent with the fact that the main role of financial intermediation is to boost allocation efficiency via (i) optimal channelling of financial resources to borrowers from lenders and (ii) reduction of cost. Moreover, the according to the narrative, ISM is important in sharing information for better financial access and allocation efficiency. In the second relationship, ICT has been documented to diffuse information between various participants in the markets of developing countries. Some of the accepted advantages have included (i) providing information for more positive engagement between lenders and borrowers (Aminuzzaman et al., 2003) and (ii) increased market participation and reduced marketing cost (Muto and Yamano, 2009, p. 1887). In summary, the intuition motivating the complementarity of mobile phones with ISM within the framework of this study is sound because mobile phones have been shown to reduce issues surrounding the lack of information between lenders and borrowers (Andonova, 2006; Ejemeyovwi et al., 2021). With the above insights, the mobile phone can enable information sharing to reduce market power enjoyed by certain financial institutions. Such reduction in market power is facilitated by enhancing openness, transparency, and the free flow of information. Therefore, mobile phones enable the (i) free flow of information between various stakeholders, clients and banks and (ii) direct involvement of borrowers after the lending process. It is important to note that after the lending process, information Asongu, Odhiambo, Information for banking efficiency in Africa: evidence from income levels and legal origins Available online at https://ejce.liuc.it 257 sharing by means of mobile phones can still be relevant in market discipline by constraining borrowers not to conceal financial activities for which they have been granted loans, not least because accurate information can be obtained by means of a mobile phone. This is essentially because borrowers may be tempted to limit compliance with their financial obligations toward banks in the hope that they may ultimately rely on the informal financial sector as a permanent source of finance. In light of the above, the advantages associated with the mobile phone can be used by ISM to keep financial institutions up-to-date as well as encourage them to participate more in the lending process. In essence, when banks receive timely information on the credit histories of clients, they are more predisposed to reduce unnecessary risk aversion that is linked with higher loan cost and lower loan quantity. The fact that banks can simultaneously act on clients’ information provided by ISM is consistent with recent literature on the relevance of Information and communication technology (ICT) in reducing the abuse of power by big banks (Boulianne, 2009; Diamond, 2010; Grossman et al., 2014) and engagement in collective actions (Pierskalla and Hollenbach, 2013; Weidmann and Shapiro, 2015; Manacorda and Tesei, 2016). 3. Data and Methodology 3.2. Data The paper assesses a panel of 53 African countries with data for the period 1996-2019 6 . The financial variable is obtained from the Financial Development and Structure Database (FDSD) of the World Bank, whereas other variables are from the World Development Indicators (WDI) of the World Bank and the World Governance Indicators (WGI) of the World Bank. The financial efficiency variable is proxied in terms of allocation efficiency, notably, the ability of banks to transform mobilised deposits into credit (Tchamyou et al., 2019). In accordance with the literature from Asongu (2017) and Tchamyou (2017), the mobile phone penetration rate is used as an instrument of information diffusion. Seven control variables from recent financial development literature are used to account for variable omission bias, namely: inflation, trade openness, remittances, 6 53 of the 54 existing African countries are chosen because data on South Sudan are not available before 2011. EJCE, vol. 19, no. 9 (2022) Available online at https://ejce.liuc.it 258 foreign direct investment, GDP growth and political stability (Huang, 2005; Osabuohein and Efobi, 2013; Asongu, 2014b; Owosu and Odhiambo, 2014; Nyasha and Odhiambo, 2015a, 2015b; Tchamyou, 2020; Tchamyou et al., 2019). We discuss expected signs. First, Huang and Temple (2005) and Do and Levchenko (2004) are supportive of the link between financial development and trade openness. Second, Huang (2011) has established a relationship between investment and financial development. Third, both theoretical (Huybens and Smith, 1999) and empirical (Boyd et al., 2001) authors agree that very high inflation is linked to less efficient, less active, and smaller banks. Fourth, the positive connection between financial development and economic growth has been substantially documented both in the theoretical and empirical literature (Greenwood and Jovanovic, 1992; Saint-Paul, 1992; Levine, 1997; Asongu, 2017). Economic growth is very likely to lower the cost of financial intermediation because of the availability of more funds for investment purposes and intensive competition. Fifth, remittances can contribute towards improving financial allocation efficiency if those to whom funds are remitted are less involved in the informal economic sector, while the effect of political stability is contingent on whether the variable is positively skewed or negatively skewed (Tchamyou, 2021). In light of the above, the expected signs are contingent on both the nature of the control variable as well as on the fundamental characteristics being examined. To put the latter in more perspective, the effect is contingent on whether the sub-sample involves middle-income or low-income countries and, by extension, English Common law or French Civil law countries. Sixth, the classification of countries into income groups is consistent with Asongu (2014c, p. 364) 7 , while the distinction between Common law and Civil law countries is informed by La Porta et al. (2008, p. 289). According to recent African finance literature (Asongu, 2012a), higher-income countries are associated with higher levels of financial development compared with their lower-income counterparts. This narrative aligns with Jaffee and Levonian (2001), who have established a positive relationship between income levels and the structure of banking systems. As shown by Beck et al. (2003) from 7 There are four main World Bank per capita income groups: low income, $1,005 or less; lower middle income, $1,006-$3,975; upper middle income, $3,976-$12,275; and high income, $12,276 or more. Asongu, Odhiambo, Information for banking efficiency in Africa: evidence from income levels and legal origins Available online at https://ejce.liuc.it 265 We further discuss the results in three main strands, namely: (i) the relevance of the mobile phone and the nexus with existing literature, (ii) implications for theory, and (iii) implications for practice. The relevance of the mobile can be understood with respect to the manner in which it improves information sharing and, by extension, reduces information asymmetry that is necessary to improve the transformation of mobilised deposits into credit for economic stakeholders (governments, households and operators). Mobile phones are instrumental in this process from three main perspectives: (i) decreasing informational rents; (ii) making credit markets contestable; and (iii) disciplining borrowers. In essence, the mobile phone is used by ISM to facilitate the diffusion of information that mitigate informational rents and reduce data privileges that are enjoyed by big financial institutions. Large financial institutions can use such privileged information to fix prices above marginal cost in order to enhance their profit margins and limit credit access. Consistent with dominant views in the literature, market power lowers investments, reduces savings, augments financial intermediation inefficiency and reduces possibilities of economic growth (see Stiglitz and Weiss, 1981; Djankov et al., 2007; Boateng et al., 2017). The intuition for the reduction of informational rents by means of the mobile phone aligns with Bergemanny et al. (2015) who have maintained that the interaction between information and market power is essential in determining market quantities and prices. Drawing on the insights provided in Section 2, from the established overall positive nexus, it can be inferred that the mobile phone is being used as an information sharing mechanism to reduce differences in information deficiency between lenders and borrowers in the banking industry. It follows that contemporary concerns about surplus liquidity (Fouda, 2009; Asongu, 2014a) and investment challenges to African business (Fasakin, 2021; Ikeanyibe, 2021) can be partly addressed by the use of mobile phones as an information-sharing instrument since doing so improves opportunities for credit allocation needed for investment purposes. Building on the narrative in Section 3, while the study confirms the comparative relevance of English Common law countries in leveraging mobile phones to drive banking system allocation efficiency, compared to their French Civil law counterparts, such comparative edge is not apparent for middle-income countries when compared to EJCE, vol. 19, no. 9 (2022) Available online at https://ejce.liuc.it 266 their low-income counterparts. Accordingly, such edge of low-income countries especially in countries where initial levels of banking system allocation efficiency are low, can be traceable to the fact that low-income countries in Africa are in the driver’s seat in leveraging more on mobile technologies to connect with banks (Mosheni- Cheraghlou, 2013). It is important to note that, as clarified in the introduction, the edge of English Common law countries can be traceable to the fact that these countries have legal systems that are more flexible to leverage extant technologies to improve financial and economic performances. Moreover, English common law countries, for the most part, have control over their monetary systems and have not sacrificed monetary experience for monetary stability, unlike most French civil law countries in Africa which still have their currencies printed in France, with corresponding central banks more concerned about controlling for inflation by limiting credit access than by promoting credit access for economic prosperity. Accordingly, surplus liquidity issues, which are associated with less transformation of mobilised deposits by banks into credit for economic operators, are more apparent in French civil law countries than in English common law countries in Africa (Fouda, 2009; Asongu, 2014d, 2016). 5. Conclusion and future research directions The study has assessed how information sharing through mobile phones affects banking system efficiency in Africa with particular emphasis on income levels (middleincome versus low-income countries) and legal origins (English Common law versus French Civil law countries). The focus is on 53 African countries with data for the period 1996-2019, and the empirical evidence is based on Quantile regressions. The choice of the estimation strategy in modelling the complementarity between information-sharing offices and mobile phones throughout the conditional distribution of financial access indicators is because studies that are based on average values (or the conditional mean) of financial access provided blanket policies. Such extensive policies are unlikely to adequately inform behaviour unless the modelling exercise is contingent on initial levels of financial access and tailored differently across countries with low, intermediate, and high initial levels of financial access. The following findings are established: (i) mobile phone penetration promotes banking system efficiency in the 25th quantile and the median of banking system Asongu, Odhiambo, Information for banking efficiency in Africa: evidence from income levels and legal origins Available online at https://ejce.liuc.it 267 efficiency in low-income countries, while for middle-income countries; it is significant exclusively in the bottom quantile (i.e., 10th quantile). (ii) With the exception of the highest (i.e., 90th) quantile in which the effect of the mobile phone is not significant in English Common law countries, the impact is significant throughout the conditional distribution of banking system efficiency in English Common law countries. (iii) As for French Civil law countries, the nexus is only significant in the median and highest (i.e., 90th) quantile of the conditional distribution of banking system efficiency. The main implication for theory is that the mobile phone is an informationsharing mechanism that can be used to mitigate potential concerns related to informational rents between borrowers and lenders in the banking industry and, thus, is an instrument of information diffusion for improving financial access in the banking industry. This theoretical implication is consistent with Pagano and Jappelli (1993, p. 2019) in the perspective of reducing information asymmetry to curb informational rents and, by extension, improve banking system allocation efficiency. Concerning the implications for practice, it is apparent from the findings that enhancing the ownership of mobile phones, especially in low- and middle-income countries where initial levels of banking system efficiencies are low, would go a long way to improving banking system efficiency. However, such a policy of enhancing mobile phones is less effective in countries in which initial levels of banking system efficiency are above the median in the corresponding low- and middle-income countries. Hence, other policy initiatives and information-sharing channels should be considered for the above-median low- and middle-income countries. In the same vein, while the policy of enhancing mobile penetration for banking system efficiency is broadly applicable to English Common law countries, complementary information-sharing policies should be considered in French Civil law countries where the incidence of mobile phone penetration on banking system efficiency has not been established to be overwhelmingly significant. In other words, the recommendation of complementary policies for subsamples and/or quantiles for which the investigated nexus is not significant is based on the fact that the mobile phone is a necessary but not a sufficient instrument of information sharing in order to improve banking system allocation efficiency. Future studies can also assess whether established linkages withstand further empirical scrutiny within the framework of country-specific studies. Furthermore, EJCE, vol. 19, no. 9 (2022) Available online at https://ejce.liuc.it 268 investigating alternative mechanisms by which information asymmetry can be reduced to enhance other development outcomes is worthwhile. In the suggested future research direction, the use of mobile sharing applications should be considered because such applications could provide more insights into what type of information is shared to improve banking system efficiency. Moreover, while credit users or clients are not engaged in this study because of its orientation towards macroeconomic data owing to data availability constraints, it is important for future studies to also consider microeconomic data from which such information on clients can be explored. Moreover, in the suggested future research directions, the classification following Gehring (2013) using middle income should also be considered. Asongu, Odhiambo, Information for banking efficiency in Africa: evidence from income levels and legal origins Available online at https://ejce.liuc.it 269 Appendices Appendix 1: Definition of variables Variables Signs Definition of variables Sources Banking System Efficiency BcBd Bank credit on Bank deposits World Bank (FDSD) The Mobile Phone Mobile Mobile phone subscriptions (per 100 people) World Bank (WDI) Economic Prosperity GDPg GDP Growth (annual %) World Bank (WDI) Inflation Infl Consumer Price Index (annual %) World Bank (WDI) Foreign Direct Investment FDI Foreign Direct Investment, net inflows (% of GDP) World Bank (WDI) Trade openness Trade Imports plus Exports in commodities (% of GDP) World Bank (WDI) Remittances Remit Personal remittances, received (% of GDP) World Bank (WDI) Political Stability PolSta “Political stability/no violence (estimate): measured as the perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional and violent means, including domestic violence and terrorism” World Bank (WGI) Middle Income Middle I Middle and Upper Income Countries ($1,006 or more) Asongu (2014c, p. 364) Low Income Low I Low Income Countries ($1,005 or less) Asongu (2014c, p. 364) Common Law Common L English Common Law Countries La Porta et al. (2008, p. 289) Civil Law Civil L Civil Law Countries La Porta et al. (2008, p. 289) WDI: World Bank Development Indicators. FDSD: Financial Development and Structure Database. WGI: World Governance Indicators. EJCE, vol. 19, no. 9 (2022) Available online at https://ejce.liuc.it 270 Appendix 2: Summary Statistics (1996-2019) Variables Mean S.D Min. Max. Observations Banking System Efficiency (BcBd) 71.019 28.897 13.753 196.078 1105 Mobile Phone Mobile Phone Penetration 38.387 42.910 0.000 184.298 1206 Control Variables GDP growth 4.575 7.912 -62.075 149.973 1207 Inflation 8.736 27.569 -60.496 513.907 1088 Foreign Direct Investment 4.356 9.233 -8.703 161.824 1191 Trade Openness 72.819 39.722 17.858 347.997 1147 Remittances 3.799 7.244 0.0001 98.388 1034 Political Stability -0.551 0.917 -3.314 1.282 1060 Income Levels and Legal Origins Low Income Countries 0.584 0.492 0.000 1.000 1272 Middle Income Countries 0.415 0.492 0.000 1.000 1272 English Common Law 0.377 0.484 0.000 1.000 1272 Civil French Law 0.622 0.484 0.000 1.000 1272 S.D: Standard Deviation. Min: Minimum. Max: Maximum. BcBd: Bank credit on Bank deposits. GDPg: GDP growth. Source: Authors’ calculation Asongu, Odhiambo, Information for banking efficiency in Africa: evidence from income levels and legal origins Available online at https://ejce.liuc.it 271 Appendix 3: Correlation matrix BcBd Mobile GDPg Infl FDI Trade Remit PolSta Middle I. Low I. Common L. Civil L. BcBd 1.000 Mobile 0.075** 1.000 (0.012) GDPg -0.025 -0.060** 1.000 (0.398) (0.041) Infl -0.141*** -0.105*** 0.073** 1.000 (0.000) (0.000) (0.017) FDI -0.086*** 0.047 0.224*** -0.013 1.000 (0.004) (0.108) (0.000) (0.668) Trade -0.158*** 0.256*** 0.009 -0.086*** 0.325*** 1.000 (0.000) (0.000) (0.738) (0.005) (0.000) Remit -0.095*** 0.006 -0.028 -0.056* 0.057* 0.124*** 1.000 (0.001) (0.846) (0.367) (0.082) (0.069) (0.000) PolSta 0.019 0.188*** 0.035 -0.173*** 0.090*** 0.299*** 0.066* 1.000 (0.714) (0.000) (0.260) (0.000) (0.003) (0.000) (0.051) Low I. -0.057* -0.293*** -0.023 0.071** -0.0007 -0.241*** -0.123*** -0.254*** 1.000 (0.055) (0.000) (0.410) (0.019) (0.981) (0.000) (0.000) (0.000) Middle I. 0.057* 0.293*** 0.023 -0.071** 0.0007 0.241*** 0.123*** 0.254*** -1.000 1.000 (0.055) (0.000) (0.410) (0.019) (0.981) (0.000) (0.000) (0.000) Common L. -0.117*** 0.103*** -0.041 0.033 0.022 0.110*** 0.106 0.108*** -0.055** 0.055** 1.000 (0.000) (0.000) (0.152) (0.271) (0.446) (0.000) (0.000) (0.004) (0.049) (0.049) Civil L. 0.117*** -0.103*** 0.041 -0.033 -0.022 -0.110*** -0.106*** -0.108*** 0.055** -0.055** -1.000*** 1.000 (0.000) (0.003) (0.152 (0.271) (0.446) (0.000) (0.000) (0.000) (0.049) (0.049) (0.000) *,**,***: significance levels of 10%, 5% and 1% respectively. 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