Financial inclusion and stability in MENA: Evidence from poverty and inequality

Abstract

Despite a significant growth in profitability and efficiency, MENA's well developed banking system seems to be unable to reach vast segments of the population, especially the underprivileged ones. To this end, the onus of policymakers in the region is to create effective opportunities for financial inclusion, and subsequently poverty and income inequality reduction. Whether they have succeeded in their endeavor is an empirical question we seek to address in this paper. Using Generalized Method of Moments (GMM) and Generalized Least Squares (GLS) econometric models and a large sample of eight MENA countries over the period 2002–2015, this paper assesses empirically the impact of financial inclusion on income inequality, poverty, and financial stability. Our empirical results show that while financial inclusion decreases income inequality, population size and inflation are found to increase income inequality. Other empirical results show that financial inclusion has no effects on poverty, whereas population, inflation, and trade openness are all found to significantly increase poverty. Finally, the empirical evidence indicates that while financial integration is a contributing factor to financial instability in MENA, financial inclusion contributes positively to financial stability.