Trust in banks, financial inclusion and the mediating role of borrower discouragement

The link between bank trust and financial inclusion remains less explored despite the recent emphasis on financial inclusion in the midst of significant declines in bank trust across the globe. From an emerging country perspective, we examine the bank trust – financial inclusion nexus and the mediating role of borrower discouragement, using data extracted from a comprehensive individual/household level survey in Ghana. After addressing endogeneity, we find that, overall, financial inclusion among those who have trust in banks is 34.3 percentage points higher, compared to those with no trust. This finding is consistent across three different methods of addressing endogeneity. Higher levels of financial inclusion associated with bank trust are more evident among males and urban-located residents. Further analysis revealed that the link between bank trust and financial inclusion is mediated by the discouraged borrower syndrome. It is recommended that financial institutions make conscious efforts to foster client trust which has the capability to reduce borrower discouragement and improve financial inclusion.