Financial Inclusion and Stability: What Does Research Show?

This CGAP Brief explores what research shows about the linkages between financial inclusion and financial stability. Four factors come into play: financial inclusion, financial consumer protection, financial integrity, and financial stability. The paper notes that these factors are interrelated and under the right conditions, positively influence each other. Its findings include:

• Focus to date has been on linkages among financial development and economic growth, reduction of income inequality, and poverty alleviation;
• There is limited empirical work exploring the specific linkages between financial inclusion and financial stability;
• When effectively regulated and supervised, financial development spurs economic growth, reduces income inequality, and helps lift households out of poverty.

The paper concludes that in spite of the progress standard setting bodies have made and the substantial volume of empirical research that has been conducted, important gaps still remain.