Exploring the role of financial inclusion in poverty reduction: An empirical study

Abstract

This study investigates the impact of financial inclusion on poverty, focusing on the role of unequal access to finance and various inequalities in developing countries during the 2004–2018 period. Women and the poor in developing countries still face discrimination in accessing financial services. Similarly, a higher income, wealth, and gender inequality, along with low institutional quality and educational attainment, may obstruct financial inclusion from reaching its target groups and influence poverty in developing countries. This study applies two-stage fixed-effect methods and conditional analysis to examine these issues. The results reveal that financial inclusion is more effective in poverty reduction in countries where women and the poor have higher access to formal finance. Though financial inclusion significantly affects poverty in countries with high inequalities, high income, and gender inequality diminish its impact. The study also investigates how institutional quality and educational attainment affect financial inclusion's impact on poverty and finds that these factors improve the effect of financial inclusion. The study prescribes that policymakers aim to make financial services accessible to disadvantaged groups. It also recommends that developing countries try to reduce inequalities, improve institutional quality, and encourage school enrollment along with financial inclusion initiatives to reduce poverty substantially.