Financial inclusion and stability in the Asian region using bank-level data

Abstract

Financial inclusion drives human development by supporting inclusive growth, economic development, and financial deepening. It has become a key enabler in reducing poverty and boosting prosperity. Financial inclusion can provide billions of currently unbanked adults with access to and active use of affordable financial products and services for their needs from transactions, payments, savings, credit, and insurance. The Asian region is generally considered to have a low level of financial inclusion. In addition, financial inclusion has mostly been ignored in current academic studies on the region. The governments in the region have expressed their concerns about macroeconomic instability associated with extensive financial inclusion. As such, this paper examines the linkage between financial inclusion and financial market stability using a dataset of 3071 banks in the Asian region over the period from 2008 to 2017. This paper uses a generalized method of moments (GMM) approach. Findings in this paper indicate that the higher level of financial inclusion from providing access to banking facilities contributes positively and significantly to stability in the banking sector, leading to greater bank resilience. Financial inclusion can help banks increase revenue, reduce cost, and expand their market share. Policy implications are outlined based on the findings in this paper.