Financial Inclusion and Its Impact on Inclusive Growth: The Macro-Economic Perspective in Sri Lanka

Abstract

The term “Financial Inclusion” means the transfer of formal financial services at a reasonable cost to the vast sections of underprivileged and low-income group of the country. Financial inclusion and inclusive growth are the two sides of the same coin. Both are interrelated and interdependent. For growth to be inclusive, all people should access and use the formal financial services. In Sri Lanka, it is apparent that the inclusive growth is hampered by financial exclusion. Mostly, banking and other financial services are not distributed adequately, especially in rural areas of the country. Therefore, there is a large part of the rural population that involve in high risky informal financial transactions thereby involving with the informal financial sector. The present study attempt to examine the contribution of financial inclusion to enhance the inclusive growth of the country. This study concerned economic growth, poverty, equality and employment as main dimensions of the inclusive growth. As per the nature of the study, secondary data were collected from literature and other accepted reports. The research employed a regression model using E-views to analyse time series data from the period of 1985 to 2019. According to the findings of the research, results revealed that there is a significant positive impact made by the financial inclusion on the inclusive growth of the country. Further, the results explained economic growth as the most significant determinant and employment as the least significant determinant which is influenced by the financial inclusion in the Sri Lankan context.