Financial Inclusion and Development: A Cross Country Analysis

This paper defines the concept of financial inclusion and examines the relationship between financial inclusion and development. The paper uses an index of financial inclusion (IFI) to investigate macroeconomic factors associated with financial inclusion. It studies the relationship between IFI and the Human Development Index. Further, it uses results of empirical analysis of data from 49 countries to identify country-specific factors associated with financial inclusion levels. The paper concludes that financial exclusion is a reflection of social exclusion. Key findings include:

• Income as measured by per capita GDP, income inequality, adult literacy and urbanization are important determinants of inclusion;
• Physical and electronic connectivity and information availability enhance financial inclusion;
• Proportion of non-performing assets is inversely associated with inclusion;
• Capital asset ratio is negatively associated with inclusion;
• Foreign ownership in the banking sector negatively affects financial inclusion, while government ownership has no significant effects.